Over the years as an investor, you may have heard all the things that are wrong about annuities from your financial adviser or money manager. What you may not have heard from them in what is NOT wrong about investing your money in annuities, specifically, fixed indexed annuities.
What Is Not Wrong About Fixed Indexed Annuities:
- Let’s be Captain Obvious for a minute…they are fixed… which means your account will not lose value, it will preserve your assets over time. Look at your statements and tell me you wouldn’t like having at least the same amount in your account after a volatile year.
You make money in the good years: when the S&P 500 is positive. In the bad years, you make 1% while everyone else is losing their shirt. Granted, 1% is not very much…it does not even beat inflation, but it is significantly better than minus 20%, or even 10% loss of your market value.
- Taxes are paid only when you use the money. You do not get a 1099 on your annuity money, unless you make a withdrawal. While your friends, colleagues and golf buddies are seeing their account balances go down and get slammed with taxes from last year’s gains, you can just sit back and know your money is safe and tax deferred.
- You have been told you can’t use money in an annuity until age 59 1/2. That is to your benefit. You shouldn’t use this money until age 60 or older because if you do, you would pay a 10% penalty on your earning. The penalty discourages the use of your retirement money for any other purpose. An annuity is the closest thing there is to a pension that you create for yourself. It is also one of the safest options next to an FDIC insured bank account.
- Annuities don’t grow fast. That is true, they are designed to provide steady and modest growth, like a pension fund does. A pension is a reliable source of income and cannot be risked on speculative behavior. Hope should not be part of your retirement investment strategy; instead aim for certainty through an annuity.
Annuities have a place in your assets management strategy if your goals include to reduce taxes and maximize the chances of not outliving your income. They are not suitable for everybody or in every situation. Talk to your adviser or contact me to see if an annuity can help you reach your retirement goals.