It was time to do another blog post about what we believe is the best retirement annuity. There are some alarming statistics that are put out every so often that is truly alarming. People are not saving enough, people are not making enough, and there is a general sense that the economy is going to collapse and explode. Dealing with clients everyday and explaining to them that the do not need the best cable package, they do not need the best cell phone, they do not need to go out to dinner 5 to 7 times a month as a reward for working hard. They just don’t get it and will live in poverty when it comes to retirement. I do not want that for anyone.
People just do not get it. Have we all succumbed to the will of advertising and keeping up with the Jones’s? Many of us have not and actually have somewhat of a nest egg that we call our retirement savings. It is a challenge getting to a stage in life where is there is no more debt. By that I mean no debt besides a mortgage payment. Most of us will be paying a mortgage payment until we die. That is the way they want it and many have fallen into the endless cycle of borrow and pay back. If the bank you use is in a nicer area and building than you, what is that telling you. We all need to strive to save more, even if it means sacrificing the wants now for the needs later.
It is all about balance. The balance of time and savings and the power of compounding that annuities offer on principal while protecting you from downside markets. Throughout the whole website there are various types of Annuities and they all serve their unique purposes. Annuities are insurance contracts between you and an insurance company that have contractual guarantees. The last time I read a mutual fund prospectus, there was a whole lot of fine print about risk and potential loss of principal. You can never lose money with Annuities unless you cancel them before the contract. It is that simple.
Fixed Annuities are the most simple. Many people refer to them as CD like investments. CD’s however are bank driven and as part of that are FDIC insured. Fixed Annuities are just like CD’s in that they offer a fixed or set interest rate for a set period of time. They are not FDIC insured because most insurance companies are not banks. There are different nuances to different carriers but the concept is simple. You deposit a determined amount of money with the insurance company for a set period of time. At the end of the period, you will receive your principal and interest in return. Most investors use Fixed Annuities in laddering strategies where there is an impeding rollover of an expiring fixed annuity with a rollover into a longer term fixed annuity. Short term fixed annuities do have a lower yield but that is expected and also expected from short term CD’s as well. The longer the term, the higher interest rate expected with Fixed Annuities.
Fixed Indexed Annuities are exploding as an alternative to an annual 4% distribution of your 401(k) plans. We love Fixed Indexed Annuities because you the investor have so many choices of investment options. First of all, think of this type of annuity as your ultimate retirement annuity. When you are thinking and planning about your retirement, it is usually in your later years where the time horizon is anywhere between 10-14 years. That is where the fixed indexed annuity comes into play. When you deposit your funds with the insurance company you have the option of earning a set return in the fixed account. You also have the option of asset allocation for different index crediting where you can earn a safer return on that allocation of an index performance. When the index performs on the upside, you will not earn the whole upside, but a cap that is predetermined based on the contract that you enter into. Many investors favor these types of annuities because they do have the potential to earn more than fixed annuities. Each year on your anniversary date, you can change your asset allocation and set it and forget it. Any deposits made to the account usually sit in the fixed account until the next anniversary. We often advised our fixed indexed annuity clients to save your money and make the deposit a month prior to your anniversary. Fixed Indexed Annuities also have income riders that provide an income stream that you cannot outlive. There is a tradeoff however. During the accumulation years there is a charge for this income rider and when it comes time to retire, you exchange access to that lump sum for an income stream that will pay you, or your spouse for the rest of their lives. If however there are funds remaining in your account on your passing, beneficiaries would receive any balance but that is part of the contract and carrier you select.
Immediate Annuities are also a simple form of Annuity. Many investors use this type of annuity as a way to spread out a large lump sum to reduce their tax burden. While the most common use is at or close to retirement, many investors would take their whole savings and turn it into an instant pension. When you enter into an immediate annuity contract, you have several choices. These are outlined throughout the website but you can elect to receive income for a set period of time or for life. These types of Annuities are also known as single premium immediate annuities or SPIA’s. We love all types of annuities and their unique differences and their uses for stages in life. Annuities are not bad words or bad investments and have provided income for many many people in their retirement years. You as a prospective or current investor need to read and understand what annuities can actually do for you.
Annuities are investments and contracts between you and an insurance company. I however am an Annuity Broker so when you explain to me what you want, I will try my best to fit your wants and needs to a product and carrier. You will have plenty of time to read, understand, and review your contract. Remember, Annuities have suitability requirements so not everyone who applies is able to purchase an annuity. They have to fit into your investment plan and picture and be a right fit.
Jack Fleming – Insurance Broker
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