Lenny Dykstra and Annuities

Take it from someone who has sold them before — annuities are very attractive propositions — at least for the salesman. If an insurance agent can close a $1,000,000 annuity, that one deal can make a year. Not saying there are not situations where annuities make sense, but annuities are often sold to enrich the salesperson more than anyone else. And they have earned an almost infamous reputation in the industry because of it.(Smart Money has a good article on problems with Variable Annuities.)

That’s why I was particularly interested when I read about former lead-off batter for the Phillies, Lenny Dykstra, spouting off the benefits of annuities. June’s issue of Kiplinger’s highlights Dykstra’s investment business. I’m not much of a baseball fan, but I had heard of Dykstra. Batting a respectable .285 with 1,298 hits, Dykstra played in the late-80’s, early-90’s. From all accounts, he was a hard-charging player with an off-the-field reputation to prove it. Once retired, he invested in options and real estate making a few more bucks. Dykstra now writes for Phillies-fan, Jim Cramer, at theStreet.com.

As for Dykstra’s annuities…they are typically avoided in the investment management world. Think overweight, dark-suited, slicked-back hair, life insurance salesman, working out of the car, sitting at your kitchen table – who just won’t leave until you sign that contract – that’s the image I got when I heard about Dykstra’s new-found obsession: annuities.

My impression of Dykstra’s logic goes something like this: “I sell annuities to professional ball players because it makes sense. When these guys make all that money, most of them are too stupid to know what to do with it. That’s why it’s best to lock in guaranteed income. That way they won’t be broke when they retire from the league.”

Maybe most NFL, NBA, MLB and other 3-letter leagues are filled with players who understand sports physics better than finance. But I disagree that annuities are the best solution for these players. Annuities lock in principle, unlike any other vehicle. The withdrawal tax penalties can be punishing and the fees are outrageous. Not to mention, people who purchase annuities can lose everything if the insurance company goes under. At least a mutual fund’s risk is spread over many companies. Unless you fall into these categories, you should think carefully about purchasing these types of contracts.

Here’s a final comment from Dykstra in a Philadelphia Enquirer interview..

Host Bernard Goldberg:
“Is it true you once said you don’t read books because they might hurt your batting eye?”

Lenny Dykstra:
“Yeah. You got to rest your eyes, man, plus it makes you think too much.”

Goldberg:
“Reading?”

Dykstra:
“Too confusing.”

Goldberg:
“Reading?”

Dykstra:
“Yeah, I still don’t like to read.”

Goldberg:
“And I’m supposed to follow your investing advice?”