Financial Annuities in Mexico

Uh, oh. Someone mentioned annuities. Not that you asked, of course, but please allow me to give you my unsolicited (and unwelcome by the insurance industry) opinion about annuities.

An annuity is a life insurance product. The insurance company guarantees that it will pay you a set amount of money for a certain period, often for the rest of your life (the "life income" option) but it could also be a limited period such as 10 or 20 or 30 years (the "period certain" option). The amount is guaranteed by the full faith and credit of the insurance company and is not guaranteed by any government agency. However, insurance companies almost never go out of business. (How do you know a life insurance company is making money? Their doors are open.) On the exceedingly rare occasion that a life insurance company does go bankrupt, it is usually from malfeasance or incredible stupidity. When it does happen, other life insurances companies will come to the rescue with the blessings of the state administrators because no one in the industry wants their customers to believe that their life insurance company might be the next to fall. (Note: In the U.S., insurance companies are regulated by the states.)

The life income option is very popular because people love the idea that their source of income will not outlive them. However, you are paying dearly for that guaranteed income. What the insurance company is saying to you when they offer you an annuity is this: "Don't gamble with your money! You could wind up with mediocre returns. Give your money to us and we will guarantee you will get mediocre returns!" The fees on annuities are very high and the insurance company is very stingy with the returns they pass on to their customers.

Given a moderate amount of self-education or the help of a qualified and ethical financial advisor, you could easily build and administer your own annuity. You are almost always going to do much better than the annuity. However, there are caveats. Someone without self-discipline, who is rash with their money, or possibly believes they could "play the markets" and produce eye-popping returns might be much better off with an annuity. (But if you really do love your life insurance agent, please do buy an annuity from him or her. The commissions are positively delightful! Plus, they could earn an all-expense paid cruise in the Caribbean!)

Although poor Mr. Ken Fisher of Fisher Investments displayed poor judgment and even worse timing and got himself into deep kimchee trying to make a joke about women at the height of the MeToo movement, he does get one thing right when he famously says, "I hate annuities ... and so should you!"

My apologies as I can pontificate about finance and investments far longer than any reasonable person would ever want to listen. I only live and breathe and teach and work with this stuff.

Respectfully submitted,

Frank Paiano
Professor Emeritus (fancy phrase for retired), Finance and Investments, and
Registered Representative (a.k.a. Stockbroker) and Licensed California Insurance Agent

P.S. I absolutely adore this forum. ¡Un millón de gracias, Rob!