Why we hate annuities

[vanillabean]

If you have read some of those many articles on how Americans are well behind on funding their 401Ks and you wish to go back to the pensions of yesteryear, you may be interested in Why we hate annuities, given the "obvious confirmation bias against annuities.”

"Her [my wife's] psychobabble is usually over my head but this confirmation bias claim sounded like it had merit so I dug a little further and, of course, she was right. A confirmation bias means that you like information that actually confirms your existing beliefs, even if those beliefs are incorrect."

[14Fiesta]

I'm not familiar with what an "annuity" is. Can someone inform me what they are, and how they are beneficial? TIA

[Revelate]

It's another type of investment, I haven't been in a place where it makes sense for me but it may a smart choice for many who are savvy enough to understand them.  I sort of casually looked into a 5% return one recently as a hedge but ultimately my finances are going to get stuck in the housing market seemingly.

Google really is the best place if you want more information on them, I certainly can't do them justice.

Anyway I had thought the major bias against them was when they were offering 18% type rates back in the day before the S+L crash and many of them got wiped out.  Admittedly the T-Notes were absurdly high back then too and the Annuities had to offer better returns than the government-backed securities, but a lot of people experienced a bunch of pain then... when my school essentially ground to a halt for a bit as the news of the market collapse came in, it was kinda a big deal to the psyche of a bunch of folks.  I don't remember all that much from my day to day scholastic endeavors, but this one ranks right up there with Challenger in terms of my childhood: stark and unforgettable.

[Open123]

Like every investment strategy or product, there are times and situations when it's appropriate, and times when they are not.  For instance, a Fixed Annuity during the Carter Admin was likely the greatest investment of the past 30 or 40 years, where a Fixed Annuity now (just like CDs and/or long term bonds) are likely horrible investments.

*Edited*  PS - Worst investment currently is cash, mm, or CDs, which all earn negative returns when factoring in potential inflation.

[onstar]

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@Anonymous-own-fico wrote:

If you have read some of those many articles on how Americans are well behind on funding their 401Ks and you wish to go back to the pensions of yesteryear, you may be interested in Why we hate annuities, given the "obvious confirmation bias against annuities.”

"Her [my wife's] psychobabble is usually over my head but this confirmation bias claim sounded like it had merit so I dug a little further and, of course, she was right. A confirmation bias means that you like information that actually confirms your existing beliefs, even if those beliefs are incorrect."

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Great article. Definitely confirmation bias. Same with permanent life insurance.

[youdontkillmoney]

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@Anonymous-own-fico wrote:

If you have read some of those many articles on how Americans are well behind on funding their 401Ks and you wish to go back to the pensions of yesteryear, you may be interested in Why we hate annuities, given the "obvious confirmation bias against annuities.”

"Her [my wife's] psychobabble is usually over my head but this confirmation bias claim sounded like it had merit so I dug a little further and, of course, she was right. A confirmation bias means that you like information that actually confirms your existing beliefs, even if those beliefs are incorrect."

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^^^^^^

I have a Vanguard variable annuity and annuities make sense for people who want a stream of income for retirement but only AFTER you have maxed out ALL other retirement vehicles and have the extra money to put in an annuity and let it grow tax deferred.....I started with a $5,000 balance just to let it sit, this was a few years ago, it is not $8,000 or so. In the future when extra money needs a place to sit for retirement, I'll park more.