Boomers brace for coming onslaught of annuity marketing

The headline from the Wall Street Journal says it all, "As Boomers Retire, Insurers Aim to Cash In." This means that baby boomers need to be prepared for the coming onslaught of marketing messages (and possibly high pressure sales tactics) to get them to buy annuities. Given boomer fears about outliving their savings, boomers are primed for sales messages that promise payouts for as long as they are alive.

Insurance companies have done pretty well with baby boomers over the years. When baby boomers were in mid-career, financial institutions rose to the occasion and marketed a variety of products for boomers to build nest eggs. Now that boomers are starting to move into a new phase of their lives (retirement), these same institutions are eying the trillions of dollars that baby boomers have tucked away and creating new products to get at them.

The result is a world-wide race to sell variable annuities, a product with risks for insurers and a checkered past for U.S. consumers, thanks to unscrupulous sales practices by some brokers and third-party agents. They typically offer regular payments for life -- no matter how long a customer lives.

Annuities can be difficult to evaluate. One reason is that longevity is very difficult to predict--especially over a long time period. Will their be medical advances that cure cancer, Alzheimer's, pneumonia, etc. Furthermore, they are often laden with upfront and annual fees and varying payout schedules and benefits. Because of the complexity of the products, and the confusing fee schedules, the industry has had problems with unsavory sales practices.

In the U.S., the National Association of Securities Dealers has brought more than 350 disciplinary actions since 2000 alleging improper annuity sales tactics by advisers, brokers or agents. Among the most common complaints: the sale of variable annuities to customers who are too old to benefit from income guarantees or who will need to tap their accounts early, triggering "surrender" fees. Another frequent complaint is the shifting of customers from one annuity to another, which boosts adviser commissions.

The fact is that depending on a variety of factors, annuities might be a prudent aspect of your financial planning. Then again, so might switching long distance carriers, getting aluminum siding on your house, or rid your home of "housitosis". Just because someone is pushing them on you doesn't mean they are right. The person on the other side of the sales process is not your friend and has an enormous incentive to get you to buy an annuity, and they are backed up by a multi-billion industry providing them every possible tool to convince you this is a route you want to go.

Tip: Having a fee-only financial advisor periodically review your portfolio, retirement planning, tax strategies, etc. is always a good idea. Since they do not take a transaction commission, they are particularly good people to talk to about annuities.