What is NOT Wrong With Fixed Annuities

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

  1. 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.
  2. 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. 1% is very much…it does not even beat inflation, but it is significantly better than minus 20%, 15% or even minus 10%.
  3. 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.
  4. 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 then 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 and it is the safest option next to an FDIC insured bank account.
  5. Annuities don’t grow fast. That is true, they are designed to provide steady and modest growth, like a pension fund. 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.

The Four Pillars Of Your Financial Stability

There is a few good reasons behind cars having four wheels, a house having a minimum of four walls and a good bar stool having four legs. Four is the ideal number that strikes a balance between stability and functionality. If your car had fewer than four wheels, it would be a motorcycle or one of those backwards tricycles. Fun, but not as safe or stable. What if your car had more than 4 wheels? Well, that would make it a truck of something else less practical, not as easy to drive or convenient to get around in it.

Your financial house, in which both you and your family resides, should be built for a long life with the capacity to withstand the inclement weather the world and life may dish your way. Your financial house must be stable and enduring for all who count on it for the shelter it provides, and should be built on four solid, protected pillars that will hold the roof of financial stability over your head in the worst of weathers.

The first pillar is the most basic, Family. If someone depends on you financially, and you number gets called earlier than you had hope, they must be able to survive financially. They are counting on you as you may be counting on your spouse to provide for each other, as a bread winner or care taker. Life insurance will protect your family in the event either a bread winner of care taker dies prematurely because of an illness or an accident.

The second pillar, may also be your most valuable asset; your ability to earn income. Take your annual income, multiply it times the number of years before you turn 65; for example $150,000 per year X 20 (if you are 45)= $3,000,000 and compare to the largest account or property you have. It is very likely your income will be greater than most of your possessions. If you are unable to work because of an illness or an accident left you disabled, your financial situation will dramatically change. Unlike a premature death, with a disability, you survive to live through all of the financial hardships that will come from not having enough income.

Your assets, the reservoir of your accumulated excess income, is your pillar number three. Your retirement plan, non-qualified investments, bank accounts, properties, business interest are all vulnerable to risks of depletion. Early depletion may arise from different sources ranging from paying for a nursing home, excessive management fees, market downturns, poor management, business takeover and business going under, family and legal feuds. You have worked hard all of your life, now retirement is on the horizon. Make sure your assets will be there when you need them.

Without your health, you cannot work, or enjoy your family or life. Your health is the four pillar of your financial stability and as such, it should received its due degree of attention. Taking care of your health means more than just having a health plan. It means taking control of your diet and your habits, making positive changes to improve your health overtime. Having a medical, dental and vision insurance plan will protect your assets from an illness or medical emergency.

All four pillar or interrelated and share the load of providing you with a roof of financial stability. If one of the pillars is compromised, the others will suffer as well; and the entire structure, your financial home, may collapse if it is not built solidly. You are the architect of this house and I am here to provide you with the stuff you need to build it.