Why Ken Fisher is wrong about Annuities – federal regulations

Most regular viewers of financial news on cable TV will recognize the name Ken Fisher of Fisher Investments and his lack of love for annuities. In fact he hates them and is telling everyone who will listen to him as much. His commercial even goes as far to state that he would ‘die and go to hell before he will sell an annuity’.

Simply put, he states that Annuities are expensive and only benefit the salesman.

Mr. Fisher believes, which he has published, that investing in high dividend paying stocks will generate an income throughout retirement. This will be accomplished at a lower cost than an annuity, and without giving up control of one’s assets for a period of time.

Now, the argument is not against dividend stocks or stocks in general. The reality is stocks do provide upside potential, possible protection from inflation, and even income from dividends. The are other reality is that annuities are not totally free, but rather than get lost in the weeds with who has the better idea and lower cost, let’s look at two knowns:

1. What we know about those who are retired today:

According to Social Security’s “Fact Sheet” from December of 2019: “50% of married couples and 70% of unmarried persons receive 50% or more of their income from Social Security.”

This is the exact reason as to why Irena Dushi, Howard M. Iams, and Brad Trenkamp of the Social Security Administration released a research report aptly titled: “Social Security benefits are the most important source of U.S. retirement income.”

What we know about retirees: They are relying on Social Security for income.
2. Federal regulations:

The first regulation: To receive any Social Security benefit in retirement, Medicare must be accepted when eligible. Failure to do so will result in the complete forfeiture of all Social Security benefits.

The second regulation: Social Security benefits automatically pay for the bulk of Medicare premiums.

This is problematic since Medicare premiums have been inflating at more than twice the amount of Social Security’s cost of living adjustment (COLA) and is projected to keep up this pace for at least another 8 years.

Projected inflation rates:

  • Medicare Part B premiums: over 5.70%
  • Medicare Part D premiums: 5.75%.
  • Medigap Plan G premiums: 5.50%
  • Social Security’s COLA: 2.60%.

Granted, retirees cannot have their Medigap Plan premiums deducted from their Social Security benefit, but they will still have them if they choose to be properly insured through Original Medicare.

What we know: Social Security benefits, when applying health costs from Medicare, will never increase throughout retirement

Below is a graph of a 55-year-old person today, who is planning on retiring at age 67, is earning $60,000 a year in wages, and will enroll into Medicare when eligible:

Social Security verse Medicare

Social Security verse Medicare

According to Social Security’s Quick Calculator this 55-year-old will receive about $33,684.00 in benefits at age 67. The projected Social Security COLA is pegged at 2.6% while their Medicare premiums will inflate by the projected rate.

What we know (again): The much need Social Security income will never grow.

Therefore, how does one offset this loss of income?

The simplest method is to purchase a type of financial instrument that may provide a guaranteed income for life to help offset this loss of Social Security benefits.

This instrument just happens to be the one thing Ken Fisher hates: An Annuity.

Mr. Fisher may be correct in his rationale that high dividend paying stocks can produce the income people need, but what happens when there is a Stock Market correction due to unforeseen events like an epidemic?

With federal laws being on the books and the inability to control the Stock Market people must take measures that help them produce an income that they will always be able to rely on…because Social Security won’t be that source.

Thanks to federal regulations Ken Fisher is wrong about Annuities.



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