Annuities

Annuities are another insurance product that has been completely misunderstood.

There are many misconceptions (see Annuity Misconceptions) floating around about them. I agree that the quantity of annuities and the amount of misinformation can be somewhat mind boggling, but when you spend the time we have understanding them they start to make complete sense. They also solve two critical financial planning problems – how to eliminate market volatility (risk) and how to insure a certain amount of income that you can’t outlive.

The first thing to know about annuities is that they provide safe havens for your money. These insurance companies are good at safely and conservatively growing the funds they are responsible for. Their goal is to eliminate the risks involved with protecting and growing assets. They spread their risk over a large number of people and their actuaries are very good at this, enabling them to take the risk off of your shoulders.

It seems we use insurance to protect us from all kinds of other risk. We insure our cars, our homes, our health, and our ability to create income (life insurance), so why shouldn’t we insure our retirement income? We should, but we often don’t know how to do it. These new fixed index annuities (FIA) with guaranteed income riders (available since 2007) now offer all of the guarantees of traditional pension plans.

We have built a retirement system in the U. S. that for too long has only focused on building wealth. Annuities take that wealth and create the ability to spend and consume, which is why people are saving.

With the income rider you can be guaranteed growth to be used for income (6.25%* to 6.5%* for up to 20 years). Also, when you’re ready to turn on that income stream (you get to decide when), you receive income for life, so the possibility of outliving your money becomes impossible with this type of annuity. It can be set up to grow every year with inflation. Even if you deplete your account down to zero, the insurance company** has to continue to pay you income for life. And you have an exit strategy; if you want to pull your money out, you can pull your money out***. If something happens to you, your heirs get the money. You do not lose control of your money.

*Rates are based on your age and may change, so check with us for current rates

**Annuity guarantees rely on the financial strength and claims-paying ability of he issuing insurer. We always offer annuities from the strongest A rated companies.

***Most annuities have a surrender period for the first 10 years of ownership; early withdrawal of more than 10% will deplete your principal by the amount of surrender charge still in force.