“Most investors consider the consistent rise in share price as a proxy for safety. Often not true!” ― A K Asnani.
Writing this in a pandemic-impacted world, I realize that many of us are at a loss as to what is happening right now in the markets. If you’re like most people, you’ve probably looked at your statements and wondered if there is any good way to protect what remains of your wealth. After experiencing the recent wild mood swings on Wall Street, you want and need to build a fortress around your savings.
Perhaps in the past, you felt compelled to chase after returns in order to create a lifetime income because interest rates were so low. You felt pressured to catch up and didn’t want to run out of money in retirement or have to work longer than you expected.
However, the price for getting those higher returns was seeing your life savings beaten and battered by the market. Once the dust settled and you did the math, it’s likely you didn’t come out ahead at all.
What is an Annuity?
Simply defined, an annuity is a contract between you and an insurance company that typically blends elements of both investing and insurance. You can either contribute a lump sum, such as a roll-over from a qualified plan, inheritance, or windfall, or you can make payments over time. Your earnings grow tax-deferred.
Why annuities are a perfect choice during and after COVID-19?
Looking forward to life after COVID-19, you may be seeking something that can give you some growth without loss of your principle, especially if you’re over 50. That’s when a fixed index annuity can become the cornerstone of your plan to create a more secure and worry-free retirement.
Annuities offer some solace to those worried about market volatility. They are expressly designed with the idea of providing better returns than other safe-money vehicles such as CDs and savings accounts.
It’s likely that your financial advisor, colleague, or family member tried to talk you out of annuities, saying they were too conservative and that you’d lose out when Wall Street rallied. Maybe that was somewhat true back in your 20’s and 30’s. But as you near retirement age, it’s critical to avoid losing even a penny of the money it took you years to accumulate. Annuities are the only products available that offer guarantees that you won’t lose your principle.
Why you should have an Annuity?
Here are a few reasons why I believe that if you are 50 or older, you should consider having an annuity as part of your overall retirement strategy.
1. Annuities are NOT difficult to understand and manage
Many financial planners counsel against annuities because they claim they are too complex for people to understand. However, with the help of an expert who is well-versed in the many features of modern annuity products, you will be able to find the annuity that best suits your goals.
Your annuity specialist will help you discover exactly what to expect from your annuity and how to get the most out of it. He or she will sit down with you, explain the features of your contract, and show you how it fits in with the rest of your retirement blueprint. Annuities are, in my opinion, far easier to understand than the majority of other financial vehicles in the marketplace.
2. You DO have access to your money
Many people mistakenly believe than having an annuity is like putting your money in a safe and then putting that safe into a locked storage shed and throwing the whole thing into the deepest part of the ocean. In other words, they’ve been misled into thinking that buying an annuity means your money is locked up tight and you can never touch it. It’s a myth that many advisors who don’t specialize in safe money continue to parrot.
What most people don’t realize is that nearly every annuity available allows you to withdraw a portion (usually up to 10%) of the amount you put in or earnings, whichever is greatest, during the first few years of the contract, or “surrender period.” While there may be some tax implications for doing so, there is no penalty.
Your advisor will counsel you on the tax implications should you ever need access to those funds in case of an emergency. While it is wise to avoid taking out money from your annuity if, at all possible, it is comforting to know that you have that option. Some annuities also provide for access if you or a loved one needs long-term care or is terminally ill. Ask your annuity expert about those options.
3. Annuities allow you to have protected lifetime income
Many people combine an annuity with other types of protected lifetime income, such as a pension and Social Security. This trifecta of guaranteed income sources means you’ll have payments for as long as you live, even when the account balance is exhausted. If you have a 401(k) plan, an annuity can complement and augment that plan, allowing you to generate income. In fact, Congress recognized the potential relationship between 401(k)’s and annuities and passed the SECURE Act. This legislation now makes it easier for employers to offer annuities in their 401(k) plans.
Annuities in the 21st Century are robust, multi-faceted products that offer distinct advantages, like guarantees, that others don’t provide. A properly structured annuity will provide you with protected lifetime income that you can’t outlive.