13 Jul Analyzing an annuity sales pitch

 Q. I’m retired and 79. Several vendors have been urging annuities on me. The general suggestion is: take X dollars from my IRA and put it in an annuity. This will, they claim, protect that portion of my IRA account from declines in the economy and the stock market. They admit and I understand, that such annuities will not see the high gains the stock market (and most mutual funds) are now yielding, but they will still have good yields. Most are based on changes in the S&P index and will yield a portion of the change (monthly or annually), with yields of 8 percent being waved in front of me. I argue that if the S&P is flat or goes down, they will yield ZERO. The sellers rebut that my stock or stock funds would decline more without the annuity. I use my IRA RMD for living expenses and would need to do the same with an annuity. Do such annuities make sense as a “third” leg of asset diversification?

A. We’re so glad that you’re asking questions before jumping onto someone’s sales pitch. Because that’s what it is.

While annuities can make sense in some circumstances, they’re not right for everyone.

That said, without more information about all the details of your investments and your income needs, we can only talk generally here. If you want more specific advice for your situation, consider participating in a free money makeover here at NJMoneyHelp.com. Just send us an email to learn more.

The idea that you’re working with a salesperson doesn’t sit right with Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“I have no problem with annuities in a retirement plan. However, I do have a problem with financial salespeople, and that is what it seems that you have met,” Lynch said.

He said he can’t imagine selling an annuity to someone your age.

Lynch said it sounds like you’re being offered indexed annuities, which are not bad products, but are incredibly complex.

“Generally the financial ratings of the companies that develop these products are not that good,” he said. “More important, many of the people who sell these really do not understand the mechanics of how they work.”

You mentioned possible returns, but without more information, Lynch said, he can’t comment much on that without knowing the rate of return you need on your investments.

He did want to make sure you have a counter-argument for salespeople who boast about the tax-deferred growth of annuities, saying that’s part of the reason annuities are more costly than other investments.

“You are paying for guarantees not found in un-insured products,” he said.

So is an annuity right for you? Maybe not.

Think about that free money makeover so you can have a closer look from someone who won’t try to sell you anything.

Email your questions to .

This story was first posted in July 2015.