Ten Questions to Ask When a Financial Advisor Says: "You Know I'm Not a Big Fan of Annuities"

Many financial advisors seem conditioned to wear annuity criticism as a sort of badge of honor. 

As the past couple of years have so painfully revealed, however, this conventional wisdom rests on shaky ground.

What types of questions might a client present to an advisor who appears to have a reflexive inclination to dismiss most or all forms of annuities?  Consider the following:

1.  How are my assets hedged against longevity risk?  In other words, how am I protected from outliving my money?

2.  What is the plan if I actually do end up depleting my resources during retirement?

3.  How are my assets hedged against sequence of returns risk?  In other words, how am I protected from having my retirement plans crushed by exactly what has taken place in the markets over the past couple of years?

4.  How are my assets hedged against inflation risk?

5.  What is the plan to create income in retirement, and is this level of income both adequate and sustainable?

6.  What analytic tools and methods are used to determine and demonstrate that there is reasonable probability that my retirement income projections are both adequate and sustainable?

7.  As a follow-up to question 5, what happens if my mutual fund, hedge fund, managed account, ETF or target date fund implodes and delivers results that are wildly different that what was described at the onset?  Are there any guarantees, or am I simply told to hang in there and reshuffle my asset allocation?  In a nutshell, what actual, tangible recourse do I have if my financial plan fails miserably and I am left in a precarious position near or in retirement?

8.  If credit risk or solvency of insurance companies is a concern raised by your advisor, ask them about the following: a) state guarantee funds, and; b) the number of annuity owners who have been harmed by insurer solvency over the past decade—measuring the damage both in terms of the number of individuals and total dollars.

9.   As a follow-up to question 8, ask your advisor to candidly discuss the damage that has been caused by investment management blow-ups over the past decade (hint: think along the lines of Madoff, the more than 1,500 hedge funds have ceased operations during the past year, auction rate securities, and structured products that were intended to provide “principal protection”).

10. Read this article and suggest a candid conversation regarding comparative product costs if your advisor seems overly concerned about the cost of annuities.


There are many different software products that financial advisors use to both project and analyze retirement income/spending.

Some programs and advisors will use Monte Carlo simulations. Others use different mathematical techniques.

Any and all projections, however, are uncertain and probabilistic. In other words, there is no certainty with any of the analysis. The only thing that an advisor can tell/show you is the probability, percentages, likelihood, etc that a certain income and spending strategy makes sense.