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Are annuities safer than a conservative mix of stocks and bonds?

Are annuities safer than a conservative mix of stocks and bonds?

In the aftermath of 2008, a few advisors got sued by clients who felt they should have been recommended a guaranteed annuity instead of being exposed to the ups and downs of the stock and bond markets.

Now in 2014 there is another factor to consider.   Fixed annuities are not as safe as they were in 2008.  That’s because the Pension Benefit Guarantee Corporation and too many of the State guarantee corporations are permitting a huge percentage of retirement plans to underfund their pension accounts.  

You may have seen the lawsuits where the police and other public employee unions are suing DetroitNew Jersey and other employers because their retirement plans are not being funded at the level promised when those employees were hired.  If the pension fund cannot pay its retirees, then it is up to the Pension Benefit Guarantee Corporation to make up the difference, but the PBGC pays pennies on the dollar to those struggling retirement plans.

Every good advisor makes a concerted effort to match investment recommendations with their clients’ risk tolerances and investment needs.   We at Alpha Financial will continue to watch this trend to see if  the guarantee corporations continue to weaken their ability to guarantee a pension.  

Our recommendations are not subject to a conflict of interest: our fees do not go up or down depending on how much our clients annuitize from a 401k instead of rolling over to an IRA.   We will continue to strive to give the best advice to safeguard our clients’ retirements.

Posted 8/21/2014 by Michael Dayoub, CFP®, MBA

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