Just How Safe Are “Safe” Annuity Retirement Products? – New Paper Shows Annuity Risks Are Too High for Any Fiduciary

/ jwatkins

By Chris Tobe, CFA, CAIA

To invest in annuities, you must look the other way at one of most basic investment principals -diversification, i.e., “do not put your eggs in one basket”[1]

In my latest submitted paper, cowritten with economist Tom Lambert, ““Safe” Annuity Retirement Products and a Possible U.S. Retirement Crisis,” we expose the fact that the “emperor has no clothes,” as the life insurance Industry has flooded billions of dollars into advertising, lobbying, commissions, and trade articles with misinformation on annuities with everyone afraid to call out the obvious fiduciary problems – single entity credit and liquidity risk. Excessive monopolistic profits through secret spread fees have remained hidden with no federal regulation or oversight.


We disprove the misleading claim by insurance companies that annuities are primarily backed by a portfolio of high-quality fixed income securities.  We show that only 12.5% of the portfolio of the highest rated insurer, TIAA, is highly rated securities (AA & AAA bonds).

We reveal the weakness of the state guarantee associations behind annuities, which are so flimsy they cannot even get the lowest junk grade rating from S&P or Moody’s.

We show that annuities have the highest liquidity risk of any investment in retirement plans. Even when an annuity provider’s credit risk is downgraded, investors cannot get out, even when downgraded to junk and are stuck in a death spiral all the way to default.

Hopefully, the Department of Labor’s new fiduciary rules will be enacted and protect participants in private sector retirement plans from these risks.[2]

Plans and Investors need greater transparency and true fiduciaries, not insurance salesmen – advisors who do not have insurance licenses and who will not be tempted by the huge commissions in annuities.

[1] https://commonsense401kproject.com/2022/05/11/annuities-are-a-fiduciary-breach/

[2] https://ir.library.louisville.edu/faculty/943/ 

[3] https://commonsense401kproject.com/2023/11/05/annuity-junk-fees-in-current-401k-plans/

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