It is apparent that many people did not understand the annuities they purchased. Certainly the insurance companies did not highlight the ability to make such changes when the annuities were sold.
I am not at the stage where annuities would be of interest to me, but I have long wondered at their appeal. Fundamentally you are trading your cash for a promise that the company will pay you in the future. They make promises, but it is hardly unknown for the companies to get in financial trouble and be unable to meet these commitments. I had not investigated, and had not realized, that the companies could change the promises at will, but it makes the programs themselves that much less appealing.
I suppose the reason the annuities look so good on a promised return basis is that the companies know they do not have to keep those promises. So they pitch high returns to get customers, then change them if it becomes inconvenient to do what they said they would.
A bond is also a promise to make a series of payments, but people are far more likely to diversify their bond portfolios, or use funds, and some bonds are not subject to such games- Treasuries. The problem here is that the annuities have been sold to many elderly who are far past the point of being able to return to the work force if their retirement incomes drop. So they are stuck. Many may have believed that their "guaranteed" returns were really guaranteed, and have long since lost whatever ability they may once have had to follow the complexities of the contracts.
Is this another case where the next generation will avoid these like the plague, having seen what was done to our parents?
"We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either." | | --Larry Swedroe