“The last thing I want to do is lose some of my hard-earned money to the stock market”. And so it goes. People have strong opinions about both. When I do ‘Income Planning’ I make it very clear that the most important requirement for a good retirement plan is that the clients have peace of mind. They should do what they want with their money. After all, they worked for it. Risk it, protect it, a combination of both… Whatever you decide is right for ‘you’.
I have been a financial professional for 35 years and seen it all, what works and what doesn’t. There are many different types of annuities and a lot of unnecessary confusion. But, since their inception in 1995, I have thought that Fixed Index Annuities can play a critical role in many retirement plans. My conviction gets stronger all the time. I’d like to share some different perspectives that may help you decide.
A Fixed Index Annuity is a contract typically provided by an insurance company to an “annuitant” (often a retiree). It can be used to mitigate longevity risk, outliving our retirement savings as well as a potentially great growth opportunity that also protects your principal against loss. The public has been deceived about the returns too. I have clients doing better over time by risking less.
The insurance company invests your investment in the annuity in bonds. It also uses premiums paid by annuitants who don’t live a long time to help pay annuitants who do live a long time using what are referred to as “mortality credits.” The payouts you receive come from bond interest, from increases in an underlying market index as well as from a partial return of your own capital, the money you worked for.
One the greatest objection to annuities is the you must give up your principal to get income. This is NOT TRUE for a Fixed Index Annuity. You do not give up any principal to get income, as it is provided via a ‘rider’. You principal will continue to be added to, even after you turn on lifetime income, in any year there are gains in the underlying index. They can earn money when the market goes up and NEVER LOSE when the market goes down. The remaining value of your account is available to you, subject to a predesignated free withdrawal schedule, known in advance.
HERE ARE SOME OF THE REASONS I LIKE FIAS FOR SOME OF MY ASSETS:
- It is a ‘protected’ asset outside of the Wall St (Red Money) bucket
- I can make money when the market index increases but I never lose if it goes down
- They don’t lose principal providing a source of money that has not (will not) go down in value because of market loss
- They provide longevity insurance by GT’ing income for one or both lives
- Remaining principal, interest, & bonus paid to heirs
- Liquidity ranges from 7% to 100%
- Account value credits gains even after income is started
- Guaranteed income cost is fixed, typically 1%
- Income continues even if account value goes down to zero
Risk selling advisors sometimes try to make you feel stupid if you consider an annuity. But here are just a few prominent, figures who have owned annuities: Benjamin Franklin(no dummy) assisting the cities of Boston and Philadelphia; Babe Ruth avoiding losses during the great depression, and O. J. Simpson (Hey, I did not say you had to be a good person to own an annuity) protecting his income from lawsuits and creditors. Ben Bernanke (the previous Fed Chairman who knows as much as anyone or more about money, insurance companies and protection as well as Wall St and their risk strategies… in 2006 disclosed that his major financial assets were annuities. —THINK FOR YOURSELF!