The Value of Annuities in Retirement Despite Ken Fisher's Disapproval of Them
Updated: Nov 20
Investing in your future is no longer the scary proposition it used to be. Yes, risk is ever present, but people today have free access to world-class financial experts and their advice. They are able to make informed decisions about their investments and ensure that the money they spend is being put to good use.
That said, there are times when even expert advice needs to be taken with a grain of salt. In this context, the pros and cons of annuities are a common battleground with differing opinions.
You have finance magnates like Ken Fisher who staunchly oppose annuities, which can be confusing to the first-time investor. So what’s really the deal with annuities? Let’s find out.
What are Annuities?
Out of the many investment options focused on retirement, annuities are one of the most popular investment options. People invest in annuities to receive a reliable income during retirement. Many choose to invest in them due to the benefits they offer. This includes how the money is tax-deferred (until the individual chooses to withdraw it) and deposited in a stable manner.
Some experts criticize annuities for their lack of flexibility but forget that there are several types that can be invested in. People can invest in immediate annuities, which yield an income source soon after a lump sum is invested. Similarly, there are deferred, fixed, variable, and indexed annuities that each offer unique benefits.
Who Is Ken Fisher, and Why Does He Dislike Annuities?
It’s always a good idea to listen to the advice of experts. After all, it’s not by luck that they end up at the top of the financial totem pole. That said, over time, their advice can be a little disconnected from the reality that the average person lives in.
Ken Fisher is one of the leading experts when it comes to all things finance. He has a close relationship with Forbes and has been a contributor on a number of finance and investment topics. Fisher is particularly famous for his unconventional investment advice, which focuses on global investing and a unique focus on behavioral finance.
When it comes to annuities, Fisher’s dislike is no secret. He has gone on record on numerous occasions to criticize several principles behind annuities. He believes the contracts are often complex, and those who take them are subject to misinformation and high commissions. He is also not a fan of the high surrender fees, which, he states, makes it tough for clients to exit annuities.
Are Annuities Really That Bad?
While Fisher’s advice against annuities comes from good intentions of helping people avoid investment regrets, context is extremely important. The real reason Ken Fisher dislikes annuities is that it goes against his investment philosophy.
As AnnuitiesStraightTalk states, financial advisors often have inherent biases, and that’s to be expected. Everyone is human, and strong opinions are normal. However, it's when these beliefs are passed as facts that the problem arises.
Annuities have their pros and cons, like every other investment option. The same hardline stance that Fisher has against annuities can be applied to every investment option. It’s easy to hyper-focus on the drawbacks of something and paint an extremely negative picture.
Funnily enough, many of the complaints that Fisher has about annuities are clearly debatable. For instance, he has stated that most annuities lack liquidity when this isn’t entirely true. He seems to ignore the fact that they are often used for retirement income and discretionary spending by many people.
Sure, if someone expects large amounts of liquidity from annuities, they are simply looking at the wrong investment option. Annuities serve a specific purpose and do so very well. Similarly, complaints about misinformation and manipulation aren’t really the fault of annuities, but of the people that sell them.
When did it become alright to conflate scummy advisors with a bad investment option? Even if you end up being “manipulated” to invest in annuities, it is your duty to read the fine print.
At the end of the day, it's worth remembering that even if someone is deemed an expert, they don’t know your specific situation. If there’s one thing that holds true in the world of finance and investments, it's that priorities differ. Criticizing an investment option due to its supposed lack of liquidity isn’t relevant if it isn’t a priority for the individual.
This is something that applies to any criticism of any investment option. The only exceptions would be outright scams that no sensible person should even be investing in. As long as you know their benefits and trade-offs, annuities are a perfectly reasonable investment opportunity.