| Our nation has just enjoyed one of its most popular | | | | own pension. |
| annual rituals: the Super Bowl. One can draw many | | | | You would have a hard time recognizing that product |
| lessons from the drama on the gridiron and all the | | | | today. A guaranteed minimum death benefit was |
| hoopla surrounding it. But as I watched this year's | | | | introduced in 1980. The guarantee minimum income |
| spectacle, one thing in particular caught my eye. And | | | | benefit in 1996, enhance earnings benefits in 2000, the |
| what I saw can teach a very valuable lesson about | | | | guaranteed minimum withdrawal benefit and the |
| investing. | | | | guaranteed minimum account balance in 2002. |
| Why do so many Americans watch the Super Bowl | | | | With each 'improvement' the costs have gone up as |
| every year, anyway? For the commercials, of course! | | | | well. Whereas variable annuities used to be a low-cost |
| And every year, companies try to wow us with their | | | | way to create your own pension, now they are |
| outrageous ads, or use the national spotlight to launch | | | | bloated, expensive all-things-to-all-people products |
| their newest product. | | | | offering every bell and whistle you can imagine. |
| This year was no exception, as one famous | | | | The total cost associated with variable annuities can |
| consumer products company introduced a | | | | quickly climb to 3% or more with just the basic |
| ground-breaking improvement: a razor with five blades. | | | | features--higher if you add all the 'benefits'. The main |
| That's right, not a razor with four blades, which is so | | | | purpose of a variable annuity is to provide greater |
| old-fashioned, but one with five, yes, count them, five | | | | returns then a fixed-annuity. All these costs make that |
| blades! | | | | much harder to achieve. Moreover, these costs |
| Razor blade companies aren't the only ones trying to | | | | essentially are transferring a large portion of the |
| sell us on the latest and greatest must-have upgrades. | | | | growth from your nest egg to the insurance company. |
| Have you shopped for toothpaste lately? Talk about | | | | Worse, few of these benefits are ever used. The key |
| brand extension! | | | | selling point of a variable annuity is supposed to be a |
| Why do products that work fine to start with need to | | | | lifetime income stream, but less than 5% of variable |
| be upgraded and improved? There is one reason: | | | | contracts are ever annuitized. |
| sales. If one company comes out with a new | | | | If they are a long-term vehicle designed to save for |
| improved version, it means that all of its competitors | | | | retirement, why are so many being sold to people |
| have to also. Otherwise, they might lose sales to the | | | | already retired? Why are 70 and 80-year olds being |
| improved version. | | | | sold variable annuities? |
| These improvements aren't free. Take a quick look at | | | | I say 'being sold' because only 2% of people choose to |
| the cost of a five-blade razor and you realize all these | | | | buy an annuity on their own. The rest are sold by |
| bells and whistles carry a hefty price tag, especially | | | | banks, brokers and agents. Could the fact that the |
| when compared to the 'old-fashioned' version. | | | | commission is so high be a cause? |
| The same 'brand extension' occurs in the financial | | | | Call me old-fashioned. I still shave with a two-blade |
| industry as well. They're always adding an 'extra blade' | | | | razor. It works well and saves me money. If you want |
| to their 'razor' or 'micro-cleansing beads' to their | | | | the traditional benefits of a variable annuity, choose the |
| 'toothpaste'. Annuities are a perfect example. | | | | two-blade kind. They are the low-cost, plain vanilla |
| The first annuity in America was offered in 1759. The | | | | variable annuities sold by companies like Vanguard. |
| first variable annuity was offered by TIAA-CREF in | | | | You already know what next year's Super Bowl |
| 1952 for use in college retirement programs. The | | | | advertisement will be: a razor with six blades! And you |
| purpose of the variable annuity was to allow a teacher | | | | know what your commission-based advisor will be |
| to grow their nest egg during their working years and | | | | pushing soon: an investment with another costly |
| then convert that growth into a steady income stream | | | | feature! Don't fall for it! Ignore the hype. |
| when they retired. In effect, they were creating their | | | | |