It has been said that the best tool for the job is the one that was designed for that purpose. When I was young, my father would often catch me using the claws of a hammer as a screwdriver. It can work, but not very well. And, it may do some damage. When looking for a financial vehicle to provide you stable, consistent, and guaranteed income in retirement, we advise clients to learn about the one financial product that was designed to do exactly that. That product is known as an annuity.
An annuity is an insurance product designed to guarantee income for life regardless of the amount of principal remaining that funded the account at inception. It is the only financial product available on the market today that can provide that guarantee. Bonds, stocks, mutual funds, and (thanks to low interest rates), not even CD’s can make that claim. In addition an annuity is best used to provide the amount of income you need to meet your daily necessities. Once your necessities and fixed costs are covered by guaranteed income, your remaining money can be invested for more growth potential as a result of you protecting your lifestyle first.
Before you run out and purchase an annuity, it is important to learn more about the different types of annuities and which one is right for your situation. Remember, no stockbroker or financial advisor can ever guarantee stable income for life from securities or investments that go up and down in value.
Since there are several types of annuities, there is a lot of controversy about which one is best. Funds invested in a fixed or fixed indexed annuity are not subject to stock market risk. Funds invested in a variable annuity however are subject to stock market risk and generally higher fees. It is not unusual for a variable annuity to have annual fees that can exceed 4%. When you hear or read negative comments about annuities, generally speaking it involves the variable annuity or the immediate annuity. It is important to know what your speaker is talking about. There are opinions on both sides of the issue. One well-known financial advisor even goes as far as saying “I hate annuities, and you should too”. Although he is referring to Variable Annuities, in his free report, he spends all his time trying to compare a savings and income vehicle (annuity) with an accumulation or growth vehicle. (Stocks / Securities). That’s a little like trying to compare glue with oil. They are designed for completely different jobs. On the other hand you may see an ad on the internet that says something like 7% income for life or “7% annuity return” These are both misrepresentations of a specific benefit that some insurance companies offer. Annuity income is based on your specific age and the specific product used. “Annuity return” describes the interest rate credited to your account each year-not the growth of an income account. Get the facts for yourself. You may be surprised at what you find.