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Posted Jan 28

Lest there be any possible misunderstanding, the heading of this post is a MYTH, OK?  A solid myth.
In a recent article, MONEY vilified Equity Indexed Annuities (EIAs) focusing, naturally, on the most sensational anecdotes, worst products, most corrupt advisers & most heinous practices.
Their main talking point was that there were a couple of options other than EIAs that have performed better over the last couple of years.  I don’t dispute that.  Unfortunately, MONEY apparently didn’t know what those options were in 2007 because in Ben Stein’s “Perfect Portfolio” article he recommended 90% of your money be exposed to the market, 5% in real estate & 5% in energy.  He then goes on to recommend “20% of your portfolio in cash”, (which adds up to 120% by the way).
So let’s compare Ben’s Perfect Portfolio with an equity indexed annuity between 2007 and 2011.  (I have to confess that it gives me great pleasure to write this next sentence.)  With $100,000 in Ben’s portfolio you would still be down 30%, meaning you would need to gain 42.85% this year just to be even with where you were in 2007.  Impossible.  What if I had planned to retire this year, Ben?
In contrast, how would the EIA have performed?  With just the average mediocre EIA, you would now have no less than $115,829 assuming a 6% bonus & minimum guaranteed rate of 3%.  In addition, had you planned to retire this year, your Income Account Value would be $145,911 which would provide you with lifetime guaranteed income of $8025.yr.  (Try that with a CD)  At that rate of withdrawal, Ben’s portfolio would run out in 8.7 years unless it enjoyed pretty hefty future returns.  Which is unlikely.  The key point here is that EIAs are for your safe money.  They are never intended to compete with aggressive growth portfolios, even though they coincidentally competed quite well over the last ten years.,
It’s easy to look back in time and rag on someone else’s advice.  But it’s hypocritical to do so without applying the same magnifying glass to your own recommendations.  The vast majority of Registered Investment Advisers want the absolute best options they can find for their clients.  Too bad Wall Street can’t make the same claim.