I’m going to ask you the question, is an annuity right for you?  I receive many questions about why annuities are good.  I am going to break this question down into three different sections. What an annuity will not do, what an annuity will do, and then, I will focus on the “Why” annuities might work for you.

Let’s break down what an annuity is not. When you obtain an Annuity, the annuity will have a surrender period that is initially either a 5, 7 or 10-year deferral period.  When an insurance company receives your money they invest it in long term assets so they can pay out the future benefits that you have chosen when you purchased this annuity. The longer you hold the annuity the greater its value based on the contracts guarantees that you purchase with this annuity.

When you purchase an annuity, you transfer market risk to an insurance company because of that you are not going to earn the same returns if your money was invested directly into the market. You are never going to earn the 8% to 10% stock market average. More importantly to you the insurance company is going to protect you from market loss.

An annuity is not a get-rich-quick scheme. This isn’t that new investment, that stock pick, or that cryptocurrency buy in. What an annuity will do is reduce the volatility of your total investment portfolio.

It will help you reduce your risk of your money running out in retirement.

Happy senior woman

Let’s discuss what an annuity will do for you. First, it’s going to protect your principal from market losses. The money in an annuity contract has 0% floor. When you see those negative returns that you have been receiving the last two-years on your investment accounts, the money in an annuity is completely protected from these market losses.

Money in an annuity grows on a tax-deferred basis, just like in your IRA or 401K.  In fact, you can use an annuity with a IRA or 401-k or you can have a non-qualified annuity from either cash that you might have in the bank or you can place an investment account into an annuity. You only pay taxes on these accounts when you spend the money.

During the surrender period of your annuity, the insurance company will give you access up to 5% to 10% of your cash annually during the surrender period.

Another great benefit when you purchase an annuity with a guaranteed lifetime income rider, you receive 3 powerful benefits that no other investment can accomplish, with the money that you roll over from a IRA, 401-k, 403-b, SEP IRA, Simple IRA or just from your cash in the bank or an investment account.

These benefits come from the lifetime income rider that you added to your annuity. First, you receive a guaranteed growth rate on this rider while you are waiting until you retire. In today’s high interest rate environment. The rates average from 7% to 10% growth. Second benefit, when you begin to take your pension like income you get to choose whether you want to receive this income stream over a single life or additionally your spouse’s life. The third great benefit you receive from a guaranteed lifetime income rider, if you live a long life in retirement the insurance carrier guarantees that they will continue to pay you the income from your annuity for as long as you live, even if your cash runs out. I don’t know of any stock or bond that can do that, do you?

Finally let’s discuss ” Why do we use annuities? I call it retirement income insurance. You have insurance on your house, your car, and probably your life with a life insurance policy. What about your income? Why don’t we put insurance on that? And just like I said before, it’s the income stream that’s insured from the insurance carrier.

This income stream guarantee is going to reduce the volatility that you routinely experience from other investments that you have for your retirement. Your investment accounts that are manage for you need to earn a certain percentage each year to reach your monthly cash requirements to live on in retirement. Having an annuity helps reduce the amount of cash you need to pull from these accounts annually. This allows your investment accounts to last much longer in retirement. Or protect you when market crashes decrease your fortune.

In retirement you have three to four retirement sources – pensions, annuities, social security, investment income ( 401-k/IRA) and real estate. The more guaranteed sources you can add to your overall retirement, the more secure your retirement will be. A balanced retirement account has some or all of these products. If your balance is weighed to more guarantees you can almost guarantee that you can weather any tough markets that you run into in retirement.

Words in the wild

Finally, it’s going to protect you from inflation, which I call really that hidden tax. We are reminded as we look back over the last two years how much stress is put on our budgets when the cost of goods goes up. It eats away at your monthly income. In retirement this can be a disaster with compounding effects. I know people that can’t afford some of their drugs they need. Old age is not kind to most of us, when you have a financial disruption it can really affect you. There are annuities that offer increasing income on their guaranteed income rider. This is a powerful benefit to help push back the inflation affect.

Annuities provide you a source of income even if you live to 120.  It’s a contractual guarantee from an A-rated insurance carrier that this money will last for you and your spouse. If you’re worried about stock market volatility, outliving your money, or just fear of not knowing what to do with your money and making sure you have access to an income stream that will be there no matter what the market does.

An annuity is one of the great answers for you.

To learn more reach out to me, Mel Samick at 888-839-3536 or MelSamick@msn.com.

Mel Samick