Please play along with me for a short moment while I make a point… “The members here at Retirement Think Tank believe that Dave Ramsey’s services have no value and we would not suggest them to anyone. Simply stay away from his services!” Sounds pretty cruel right? We agree with you, and we actually DO NOT believe or support the statement above. We are simply using it as an analogy. In fact, we follow Dave Ramsey and have seen his services and methods personally transform people in our lives. People who went from living pay check to pay check to finally saving, buying their first house, and even tearing up some of their credit cards. Based on those facts alone, it is obvious that Dave Ramsey has played a very positive role in people’s lives. But even if every member of the Retirement Think Tank has perfect credit, owns their home outright, has no debt, and doesn’t see a need for Dave Ramsey’s services, it would be unfair to Dave to make the comment above that his services are useless to everyone. They just might be more useful to certain consumers.
With the exception of the Foreman Grill and cell phones, we haven’t found many items or services that can outright apply to everyone. You see, we continually hear consumers say that they would never invest a dime into an annuity because Dave Ramsey said they were bad. Not only is Dave making an unfair statement, he is actually doing a disservice to a potential client that could truly benefit from an annuity. A fair statement from Dave would have been, “Annuities are not a fit for everyone. For the right consumer, they could be the best retirement vehicle, while others, it could be a very bad decision.” Most annuity experts would have no issue with that whatsoever. Just like our rebuttal to Clark Howard on index annuities, make sure to give both the pros and cons to every story. It is truly misleading and a disservice to only be one-sided.
Below are comments directly from Dave Ramsey’s website tailored for consumers. I hope you can see how similar his broad statements are to the false statement we used in the beginning of this article. You will see our response in red.
Fixed Annuities: Dave does not own any fixed annuities and does not suggest them as part of your investment plan. Simply stay away from these! Dave does recommend maxing out your 401k contributions and any matching contributions for your employer. So do we. And since we know that the vast majority of 401k’s in this country are invested in stocks, mutual funds, index funds, and bond funds, Dave must believe that everyone should subject themselves to risk, regardless of age or objectives. Let’s go over some numbers since the year 2000. Assuming you had invested $100,000 into an S&P 500 index that mirrored the S&P 500 ups and downs back in October of 2000 (assuming no fees), your $100,00 would actually be worth approximately $90,000 today (October 2011). That doesn’t sound like the best investment. On the other hand, a 10 year fixed annuity back in 2000 had guaranteed yields in the ballpark of 7%. And keep in mind, that is both compounding and growing tax deferred each year. After 10 years in that fixed annuity (that many people did actually purchase back then), their $100,000 was now guaranteed to be approximately $196,000 10 years later. And the best news is they could now get their money out and have an extra 2 years in 2010 and 2011 to find another safe alternative. Which real life scenario sounds better?
Equity Indexed Annuities Dave does not own Equity Indexed Annuities and does not suggest them as part of your investment plan. Equity Indexed Annuities agree contractually to limit your loss while you agree to limit your gains. Instead, invest directly into index funds if you want to follow an index such as the S&P 500 or similar. There never has and never will be an index annuity that is a good fit for everyone. He is wrong here to assume that they are the same and that everyone would be better off investing in an index like the S&P 500. Do you recall my real example from above. Losing money over a 12 year period doesn’t sound so good to us. By phrasing it this way, he is telling us that he doesn’t think they could benefit a single client in the country. We highly recommend educating yourself before you ever buy an annuity. Don’t just take your advisors word that they are good. And vice versa, don’t just take Dave Ramsey’s word that they are bad. Make sure you understand all of the features, benefits, income options, riders, and pros and cons. There are hundreds of different annuities on the market now and there is no one size fits all.