Do We Hate Annuities?

We don't spend enough time talking about annuities.  It's true.  We know it.  We occasionally talk about it–Brantley and I.  We even make plans to do something about it.  Then it gets lost in the bustle of life–forgotten until the next time we remember that we don't talk enough about annuities.

You'd think things would be different.  We are, after all, a website dedicated to the unique features insurance contracts afford people–especially in the vein of retirement planning.  But no, we fail miserably to highlight the numerous advantages annuities provide to retirees as well as pre-retirees.

I can't promise that today begins a new era at The Insurance Pro Blog.  But I can promise that today I'm going to spend some time highlighting what annuities have to offer and why you might want to strongly consider incorporating them into your retirement plan.

Guaranteed Income

Annuities provide guaranteed income.  That's what they excel at.  That's why most people buy them.

But guaranteed income is boring–you might say.  I can do better by investing the money myself in the market and keeping all of the gains the insurance company would otherwise keep for itself.

…sigh…if only it worked that way…

If you think you can invest your dollars and provide yourself or your family with more money by managing those investments have at it.  Congratulations to you if you're successful.

But what if you're not?

What if…give me a little leeway here…you don't succeed at doing better than the insurance company.  Or what if you find managing your assets for the purpose of generating income is tougher than trying to pick the “right” investments for accumulation?  You wouldn't be alone.

And what if you grow tired of trying to manage your own assets for income generation? 

It's a lot of work.  Unless you're lucky enough to accumulate a considerable sum within your portfolio.  Most people won't.

If you enjoy spending your evenings tweaking spreadsheets and regularly logging into your investment accounts to update yourself on where the market is taking your portfolio, then keep doing what you're doing.  So long as you enjoy it, and have been successful at moving yourself in the right direction.

But here's the thing.  It's not everyone's cup of tea.

I personally enjoyed tracking all of my money a lot more when I was younger.  These days…not so much.

I have more of it now than I did back then.  It was easier to track.  But now, I have other things I'd like to do.  Other things I have to do.  Checking in with my portfolio several times a month/week/day just isn't on my list of desirable to-do items.  In fact, there are a lot of days I don't look at it.

To be clear, it's not like I just ignore it.  And I do rush pretty quickly to my brokerage accounts when I learn that the market is either significantly down or up to contemplate a purchase or sale respectively.

But actively managing it all and crafting plans like buy-in and exit strategies…yeah no.

I feel similarly about income.

True Financial Freedom

For all the nonsense financial bloggers will peddle, there's one area where we are in complete agreement.  Having assets capable of producing more income than you have in expenditures is financial freedom and such freedom is quite spectacular.

But figuring out how exactly you create that income can be daunting.  Most of us generally understand that we're supposed to figure this out by the time we retire–very few of us ever do.

Annuities are the only financial product you can buy with your assets that will G-U-A-R-A-N-T-E-E an income for the rest of your life.  There are no ifs, and's or buts about it.  It's a contractual obligation the insurance company is making to you at inception.

Now, some people object to annuities because they don't want to forfeit their liquidity.  After all, some expense might come up and if they hand a bunch of their money over to the insurance company, how will they afford that emergency expenditure.

Here's the problem.

If you're in this boat…listen to me carefully…you already can't afford the emergency.

You see, money that you earmarked for creating income isn't money that you can afford to just withdraw from the market–or where ever else it is–and use to pay for that emergency.  Doing this will bankrupt your retirement income plans.

So the liquidity argument is just intellectual dishonesty or a front you are putting on because for some reason you don't want to admit that you don't trust the mechanism at play when owning an annuity.

But there's another danger lurking that annuities also do a spectacular job of protecting you against.  One that is quite heinous but often overlooked.

Who are You Again?

If you waded through any reasonable amount of adulthood, there's a really good chance you personally know someone who has experienced cognitive decline.  It's scary to think about and super sad to witness.  But it's a probable scenario for many of us.

Sadly, seniors are targets for all sorts of financial fraud because shady operators understand that they 1.) generally have more money and 2.) are likely to be going through some level of cognitive decline that makes them more likely to respond favorably to a solicitation.

The guaranteed income aspect of an annuity also stops you from reaching too far into the till should an unscrupulous trickster land at your door with a great idea/opportunity/necessity.

The Annuity Landscape has Proven Quite Robust

Of all the insurance products that exist, none have evolved with changing times better than annuities.  The income benefits they provide today are quite stunning when compared to what was available just 10 years ago.

Sure some older contracts offer some rich benefits that shouldn't be forsaken, but don't assume that not having bought an annuity several years ago locks you out from having a contract with rich income benefits today.

Several major players have been hard at work bringing products to market that have some of the strongest income-producing features I've ever seen.  If you haven't looked at putting annuities into your retirement portfolio, it's probably time to give it a once, maybe even twice-over.

 

 

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