The Rollercoaster Ride Of Annuities: A Satirical Look At The Downsides

LCM Capital Management would love to sell you an Annuity but first you should know a few things…

The following content is mostly satirical and primarily intended for entertainment purposes.

Some promise you financial stability, BUT you might find yourself strapped into a product of uncertainty, buried fees, and well, a few more surprises than you bargained for.

1. The "Unpredictability": The thrill of not knowing what your investment will actually yield! Annuities are infamous for their complex formulas and intricate calculations that leave even the most seasoned mathematicians scratching their heads. So, why not inject some excitement into your financial planning for the mystery of annuity returns? Who needs calculators when you can have a crystal ball? I recently spoke with a prospective client along with the annuity company (and not the person who sold him this of course) and it was only after that conversation that the prospect finally realized, after being invested for a year, what he actually signed up for.

2. The "Fees and Expenses" merry-go-round: Why know what you are paying when you can buy an annuity? Surrender charges, administrative fees, mortality and expense charges, riders, oh and don’t forget about the caps on your investment rate of return. Nothing leads to a nicer car or boat, for the sales rep (not you), than a few extra fees taken out of your investment annually.

3. The "Illiquidity" Bomb: Nothing says “oh sh*$#” more than realizing your money is locked up in an annuity with limited access! Sure, emergencies might arise or another investment opportunity occur but what's life without surprises? Liquidity? Forget about it, it's overrated anyway. Annuities offer the joy of being locked into an investment where the only liquidity available comes at a sizeable cost to you.

4. The "Inflexible Terms" aka Roach Motel: Flexibility? Psh, who needs it? Annuities are here to teach you the beauty of commitment. Once you're in, you're in. Changing your mind or adjusting your strategy? Sorry, that's just not on the menu. Don't you love the feeling of being locked into a financial decision with no escape? I think this is where the phrase buyer’s remorse came from.

5. The "Tax-Deferred" Twist: Ah, yes, the tax deferral benefits of annuities! Who needs to pay taxes on their investment gains annually when you can let them pile up, only to be taxed at your ordinary income rate versus a lower long-term capital gains rate when you finally decide to withdraw? It's like saving the best for last – a tax bill that hits you right in the wallet when you least expect it. What's not to love? Oh, did I mention that you already paid taxes on the money invested in the annuity and, if you didn’t, it’s only because you own the annuity in your IRA. This might help to explain why so many annuities are held inside an IRA aka tax-deferred vehicle. Does one receive double tax deferral for this? The answer, no, but that’s where the unsuspecting client’s investable assets are which means, that’s where the commissions are.  

In conclusion, owning annuities can truly be an amazing adventure full of surprises, fees, restrictions, and of course, the ever-exciting tax implications. While some individuals find annuities to be a valuable addition to their financial portfolios, it's important to approach them with a clear understanding of their complexities and potential drawbacks.

There is a better way to invest.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.