Love is a strong word and not one you would normally use to describe feelings for a financial product, but I can’t deny how I feel! As a Retirement Income Specialist, I need to find viable solutions to the number one concern of my clients; will I run out of money? The stock market provides no security for a retiree, pensions are nearly a thing of the past and with inflation running rampant, the risk of running out of money is top of mind for retirees today.
Let’s begin with the definition of an annuity. It is an insurance product that provides supplemental income during retirement; a contractual obligation between you and the insurance company that includes minimum guarantees. It’s important to note that there are various types of annuities, and all annuities are not created equal. There are some to avoid while there are others you should embrace to insure a successful retirement. I highly advise you to consult with a seasoned insurance agent like me when considering an annuity for a portion of your retirement income.
Here are the top 6 reasons I love annuities.
- They don’t discriminate. Short of a few age requirements, anyone can have an annuity. Unlike life insurance, annuities are not medically underwritten. With that said, annuities are not the answer for everyone.
- They protect your money. You or your beneficiary(s) cannot get back less than what you put in minus any account expenses/fees. One annuity in particular makes money when the index it’s tied to goes up but doesn’t lose money when that same index goes down. What a concept!
- They provide guaranteed income. There are multiple ways to receive money from an annuity contract. In most cases, I do NOT support annuitization. This is an irrevocable decision and often works out better for the insurance company than for you. To ensure you can’t outlive your money and that someone you love and care about gets anything left in your account upon your death, I recommend an income rider. You can live to be 142 and you will receive the same amount of income every month.
- Protection for a Spouse. The guaranteed income in #3 above can continue to your spouse upon your death thus paying out income over 2 lives. How nice to know that the death of a spouse will not negatively impact your cash flow.
- Liquidity for the Unexpected. If you are diagnosed with a terminal illness or enter a nursing home after the waiting period, most contracts are 100% liquid to pay for those expenses, and some even offer additional benefits for LTC expenses.
- They are cost-effective. Again, not all annuities are created equal but the ones that check all the boxes in this post range from 0 – 1.5% annually. If you have a 401(k) right now, it’s likely your combined fees exceed 1.5% each year and you have absolutely no guarantees. What exactly are you paying for?
Fun fact, if you receive a pension from your employer during retirement, you already own an annuity. Anyone who wins the lottery and elects the 30-year payout owns an annuity. Finally, professional athletes’ multi-million-dollar contracts are funded by an annuity. Why you ask? Because the NBA and any other professional ball club does not want the risk of running out of money, so they SHIFT that risk to an insurance company. They give the insurance company a lump-sum of money today and the insurance company guarantees the required number of payments to fulfill the players’ contract.
Interesting, isn’t it? Annuities shift the risk of running out of money!
If you think an annuity might make sense for you or you already own an annuity and need a second opinion, be sure to use my calendar link to schedule a free virtual consultation.