The Right Tools for Retirement: A Quick Guide about Annuities

John Hill | May 18, 2015 | Annuity Basics, Retirement Planning

The question is not if annuities are good or bad. The question is what type of annuity works for your retirement. All tools exist for a purpose. Don`t use a hammer when you need a screwdriver. In this article, I will discuss the purpose of annuities, specifically fixed and fixed indexes annuities. By the end of this discussion, I will outline some of the questions surrounding annuities and why annuities are the right tool for your retirement.

Question 1- How much money should I risk?

Some will tell you to follow this rule of thumb, deduct your age from 100 and the sum is the percentage that can be in the market. Your retirement money serves the purpose of survival or enjoyment capital. You have worked hard to earn and save this money to protect your future. So why should you risk this money? In order to better illustrate why you might want to risk your money, let’s first define risk. Obviously, risk involves loss. In the market, loss can occur when investing through an advisor, broker, or on your own. The market experiences gains and losses all the time. The important thing to remember is what to do with your money. Once you retire and begin losing money, “on paper,” you are losing real money. No one can squander unrealized gains, but you can suffer from market drops. Therefore, always remember you are in charge of your money. Take the time to explore options and choose the route that feels right for you. I advocate fixed and fixed indexed annuities to my clients because it provides safety and growth. Over a period of time, a fixed annuity provides a series of fixed payments to the customer. Retirees can use this as an income supplement, and they can feel safer knowing that they have a steady income. Basically, a fixed annuity is like locking your home up at night before you go to sleep; it provides you with added peace of mind.

Question 2 – Should the guaranteed safety of my money be a chief concern?

Another way to phrase this question would be how much of my money can I afford to lose? Warren Buffet has 2 rules for handling money. Rule #1: Protect your principal. Rule #2: If in doubt, see rule 1. Mark Twain said, he was more concerned about the return OF his money, than on the return ON his money. Most people assume the safety of their money. They trust their brokers or advisors, but no one cares about your money more than you. Never assume your money’s safety. Unless you have a written contract, do not assume anything about your money. Trust your broker, but verify the status of your finances. Many assume that their variable annuity protects their principal. However, if you read about variable annuities on sec.gov, you will discover the truth. Variable annuities can actually lose your money if you are not paying attention. So yes, trust your broker, but keep in mind that no one can stop your financial fall. You need to prepare yourself with the right financial vehicle, a fixed or fixed indexed annuity.

Question 3 – How much thought should I give to a guaranteed lifetime income?

In other words, what happens if I outlive my assets or my money runs out? The only financial tool that can provide a guaranteed lifetime income is an annuity. Retirees worry that they might run out of money. I have spoken to many who experience this fear in one form or another. A guaranteed lifetime income can help alleviate this fear. As a feature of the fixed indexed annuity, a guaranteed lifetime income can cover expenses of the annuity holder. It can also cover the spouse over the course of their lifetime.

Many brokers will be against fixed and fixed indexed annuities because fees on your money translate into their income. Remember, you need to trust, but verify. If you want to be smart with your finances, follow the money. Learn more about annuities from sec.gov. This unbiased source will help you better understand all the options available to you. Fixed or fixed indexed annuities are tools that provide protection for your lifetime income. Use these tools to help you build a comfortable retirement.

 

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