Spam Analysis: The “Protect Your Income” Pitch of Immediate Annuities

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It is important but difficult to be an informed consumer of investment media. Sales pitches are designed to bypass our rational brain and effect us on a level that is difficult to overcome by rational thought. Avoiding such sales pitches entirely is the best defense.

It is difficult to avoid every sales pitch. On average, we see about 4,000 advertising messages every day. My mother, June Marotta, started inoculating her children against advertising at a very young age. After seeing an advertisement her first comment was often, “Too bad they had to advertise it; it must not be very good.” We would play a family game, first to see who could guess what a commercial was advertising as quickly as possible before they revealed the product. And second to analyze the subliminal message by which they were trying to sway you to consider buying their product.

Understanding the most powerful sales techniques doesn’t change the fact that they tend to work. But engaging in a level of analysis above and beyond the direct messages helps reset the framing given in the sales pitch and provides a second chance to evaluate the sales pitch once we have been exposed.

Immediate annuities are a huge source of revenue for insurance companies even though an immediate annuity is also probably never the right answer.

One annuity sales pitch I stumbled upon included the following text:

More Than a Number: New Research Shows Looming Retirement Risks Driving Anxiety Even for Americans With Significant Savings

New Alliance for Lifetime Income survey shows substantial savings are not enough to alleviate retirement angst. Savers with protected monthly income from an annuity or pension are more confident in their ability to weather future financial uncertainties.

Nearly half (48 percent) of U.S. households ages 45-72 with $75,000 to $1.99 million in investable assets are approaching their retirement years “unprotected,” without protected monthly income other than Social Security.

Alliance for Lifetime Income rolls out a multi-year, nationwide educational campaign to raise awareness and help consumers understand the importance of protecting a portion of their retirement income to guarantee they won’t outlive their money.

Let’s take this particular sales pitch and evaluate it according to our criteria.

Annuity companies who are the members of the so-called Alliance for Lifetime Income

Evaluate the Source

The source in this case is literally a non-profit organization created by an alliance of annuity companies to help sell annuities. They are very careful to avoid using the word “annuity” in their press releases or research findings. This level of misleading information and lack of straight talk ought to be enough for you to avoid them as a source of information. We should give this organization as much credence as the “New Alliance for the Health Benefits of Smoking.”

Question the Melodrama

The advertisement I saw advertised “PROTECT YOUR INCOME RETIRE YOUR RISK” over an image of a woman in forest fire gear standing in front of the smokey wasteland of what looked like a California hillside wildfire.

The marketing copy used emotion-filled words about “the possibility of outliving hard-earned savings is a real threat to the financial and emotional wellbeing of Americans currently in or approaching retirement.”

This level of melodrama discredits the source further.

Examine the Tone

The homepage of the Alliance for Lifetime Income screams “Tackling America’s Retirement Income Crisis with Protected Lifetime Income” in the largest Heading 1 font size possible. In both finance and politics when you call something a “crisis” it demands a “solution” and this provides an opportunity for financial or political salespeople to tell you how their product or candidate can provide that solution. The word “tackling” is even better than “solving” as it makes it sound like that problem isn’t going to be getting back up again. This pitch is in the typical sales format of: [SOLVING] [FELT NEED] with [OUR PRODUCT].

Their sales pitch consists of nothing more than a survey showing that “substantial savings are not enough to alleviate retirement angst.”

I could have told you that. It is often the case that those with more retirement savings have more, not less, retirement angst. Alleviating angst is just a synonym for the marketing device of preying on fear. Retirement angst is driven by fear, often an irrational fear. While fear makes an effective marketing technique for driving sales leads, it makes a terrible motivator for sound investment decisions.

Additionally, the term “unprotected” is a vague and imprecise value judgement. What are you trying to protect against? I believe that few if any retirement plans have failed because of market returns despite all the fear generated by annuity salespeople. In my opinion, retirement plans fail on account of inflation or over-spending. And although an immediate fixed annuity can provide what they would call “protected monthly income,” it may fail to protect you against both inflation and over-spending.

An immediate annuity guarantees a diminishing lifestyle because of inflation. Additionally, an immediate annuity encourages retirees who purchase an annuity to spend the entire payment they receive. This initial amount is always too high compared with the inflation-diminishing payment stream they have just started to receive.

Consider Motive

In this case the motive is to sell more annuities by pretending to be an objective nonprofit. I found no disclosures or disclaimers about the conflict of interests associated with such biased advice.

Part of the mission of this organization is to build “a platform of new online and offline content, tools, thought leadership, events, and new terminology designed to simplify this often complex topic in ways that empowers Americans to take action.” In other words they are going to try to get people to purchase annuities in part by creating new terminology that doesn’t use the word annuity.

Check the Facts

The sales pitch pretends to offer a “guarantee that retirees won’t outlive their money.” That is as easy a proposition as it is stupid. Any reasonably low or diminishing payment amount can guarantee not being exhausted during a retiree’s lifetime. An annuity does this by using a fixed dollar amount that does not go up by inflation. Alas, they guarantee that I will receive some money by guaranteeing that I won’t receive a payment that can increase by inflation or more.

A better goal is to be able to receive a payment amount which does go up by inflation. The best way to do this is to have a portfolio which can harvest the potential growth of the markets.

Summary

Most of the financial services industry is driven by commission-based sales. Your best defense is a fee-only financial advisor who offers comprehensive financial planning. If you still find yourself attracted to such sales pitches, I recommend you read our article, “What Is The Alternative To An Annuity?

Photo by Matt Howard on Unsplash

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)