Prudential’s Misleading Math

Tell me if you see something wrong with this slide from a Prudential video for an annuity feature they are offering:

Prudential's Misleading Math

Correct me if I’m wrong but if $100,000 grows 200%, it’s worth $300,000:

$100,000 x (1 + 2) = $300,000

Remember, the formula for future value is Present value times one plus the rate of return (expressed as a decimal).

As the wording on their graphic stands, it’s misleading. UPDATE: As BG states in the comments below, Prudential does include a disclaimer “As a percentage of starting value.” Regardless, it’s still misleading because most people do not look at financial math in that way. They (Prudential) knows this and that’s why they worded it this way. Is your insurance company REALLY looking out for you?

And, the real question is: Does the $100,000 grow by 200% to $300,000 or does it grow 100% to $200,000? Somehow, being that it’s an insurance company, I’m pretty sure it’s the latter.

One other thing: how did this get past compliance?

12 thoughts on “Prudential’s Misleading Math”

  1. Nice catch, AFM. I’m not sure how they got that past compliance…somebody was asleep.

    I just wrote up a post (to be published in Feb) about that video/website. The commercials say go to to learn how to guarantee your retirement or something like that. Then you get a sales pitch for variable annuities – which probably isn’t the best choice for people in the “retirement red zone”. Gotta love insurance marketing!

  2. Another oddity is that the 10-year return is 7.1774%, where-as the 20-year return is 6.8242%. You’d think they’d give you a better rate for the longer period.

    JLP: at least they “correct” their funky math with the statement “As a percentage of your Starting Account Balance” — with that statement, nothing on that slide is wrong…

  3. JLP: it is misleading. According to Prudential, anything that grows less than 100% is actually a loss — hah.

    I guess the rule is to always do your own math, as you did, to catch these sort of things.

  4. BG, I would say it’s still wrong even with the “as a percentage of your account value” statement.

    The statement above says it GROWS at least 200% (as a percentage of your account value). So that means it grows at least $200,000. (200% of $100,000 is $200,000)

  5. Working in “the industry” I can’t believe this got past compliance! They check, re-check, make you change, then make you justify the change they made lol

  6. Paul,

    If you divide $400,000 by $100,000, you get 4, which is 400%. I’m pretty sure that’s where they got their numbers from, even though they are misleading.

  7. JLP, you’re right. But my point is that they say it grows by that much. For it to grow by 200% or 400% means that you keep your initial investment plus the amount it grows. So it should be $300,000 and $500,000, respectively.

    If they had said something like “will double” or “will quadruple”, that would have worked. I just think the way it is, even with the disclaimer, your analysis in the article is correct.

    They should be fully investigated by as many compliance examiners we can send over there. 🙂

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