Somewhere in America, a retiree sat down to a free steak dinner and left with questions about fixed-rate annuities and the nature of reality.
The reader, writing to MarketWatch, described a retirement seminar in which the presenter made a fairly aggressive claim: that fixed-rate annuities can outperform the stock market. The presenter's chosen metaphor for the product was “the sparkly, rainbow-fairyland of investments.”
MarketWatch put the question to financial professionals. The answer, rendered in considerably less vivid language, is no. Fixed-rate annuities offer a guaranteed interest rate — currently in the range of 4 to 6 percent annually depending on term and issuer — and carry none of the downside risk of equities. They also carry none of the upside. Over most long investment horizons, a broad equity index has returned more.
The steak-dinner seminar format is not new. The Financial Industry Regulatory Authority has published consumer alerts on the practice since at least 2007, noting that free-meal events are typically sales presentations and that the audience skews toward retirees with accumulated savings to deploy.
The annuity being pitched was fixed-rate, not variable or indexed — a distinction the reader did not appear to have been invited to explore at length.
The steak was not described.