Another Misleading Piece of Financial Advice from Kiplinger's

Another misleading piece of financial advice from Kiplinger's

A little over a week ago, I saw an article titled “6 Ways to Avoid Outliving Your Retirement Nest Egg,” authored by Kiplinger’s Kathy Kristof. This single statement caught my attention – in a rather negative way – because it highlights what I believe is a very serious problem with many in the financial press: making generic statements that do not accurately reflect what’s out there in the real world. This, in turn, leads unsuspecting readers to draw conclusions and make decisions that are equally wrong, with potentially dire financial consequences, to say the least.

 

Under the sub-header “Buy an Annuity,” the author’s concluding paragraph said this, among other things:

“Be aware that generally if you buy an annuity and are run over by a truck a month later, no residual goes to your heirs. …”

Quite frankly, that is simply nowhere near what “generally” happens when folks buy most annuities. Rather, it’s very far from it.

Indeed, there is a specific kind of immediate annuity contract that works that way; it has a life-only payout and no refund option. However, that is only one specific variation in an entire class of immediate annuity contracts. On the other hand, there is also a slew of immediate annuities with life payout AND refund options that pay you for life, in addition to guaranteeing a specific refund payment to your heirs upon your death.

Besides, it is worth noting that there is a whole other class of annuities called deferred annuities, which make up the vast majority of annuities on the market today, in which case – to borrow Ms. Kristof’s analogy – if you were to be run over by a truck a month later, all of your money would be returned to your heirs.

So even if you inserted the word “immediate,” so that the statement read, “Be aware that generally if you buy an [immediate] annuity and are run over by a truck a month later, no residual goes to your heirs,” it will still be inaccurate. 

The only way I can see that statement serving a useful purpose and properly informing Ms. Kristof’s readers to make educated decisions – which I’d like to imagine a publication such as Kiplinger’s to be all about – would be if it said something like this: 

“Be aware that generally if you buy an [immediate life-only] annuity [without a refund option] and are run over by a truck a month later, no residual goes to your heirs.”

I’d like to state for the record that I’m by no means rooting for or against any particular kind of annuity, or any other product for that matter. Not at all. Here’s what I’ve always rooted for: Putting out the right factual information so that folks can make good decisions. But can you see how easily you can be misinformed by statements like these? So much so that you might take an action that could affect you for an entire lifetime, and even beyond? That’s my whole point!

So, my dear friend, don’t make decisions surrounding your financial future solely based on what you read in the press. Talk with an independent financial advisor with a proven record and a fiduciary obligation to put your best interest ahead of everything else. Then carefully weigh your options so that you can make the best possible choices that specifically work for you.

I wish you the very best.

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