Question: I am considering investing some of my portfolio in an annuity. What is the #1 question that I need to ask myself, and answer, before purchasing? Charles G. from New York
Answer: Your question is the “holy grail” of how to solve the annuity puzzle. Too many times people will call me about annuities and start telling me about an annuity they have been pitched by an agent. The few bullet points from the sales process that they hang on to is comical and usually disturbing, and I always have to start saying the word “STOP” to get them to quit repeating the agent’s pitch.
After they finish their “product vomiting”, I ask them the only question that matters….with their corresponding answer to that question providing any possible and suitable annuity roadmap.
That question is: “What do YOU want the money to do?” That’s the #1 question that needs to be asked and answered. Forget the agent, their agenda, and their typical one size fits all solution. What do you need the possible annuity to contractually solve for? Lifetime income? Principal protection? Legacy? Long Term Care? Growth? From your answer to the #1 question, all follow up questions will then clarify if an annuity might be suitable and appropriate for your specific situation.
For example, if you answered lifetime income, then the follow up question is: Do you need the income to start now or at a future date? If the answer is now, then you might need a Single Premium Immediate Annuity. If the answer is later, then you possibly need a Longevity Annuity or a deferred annuity with an attached income rider in order to know the exact dollar amount of your future income stream.
If you answered growth, then annuities might not be the product for you because I tell all of my clients that you should own an annuity for the contractual guarantees only. Never buy an annuity for hypothetical, potential, or projected growth numbers! Agents can make those numbers look really good, but it never seems to work out as well as the proposal numbers they are so excited about. If you talk to any other annuity agent than myself, you will find that I pretty much stand alone with this view of “contractual guarantees only.” Most agents love to sell you the dream of market returns. That is not what annuities were put on the planet to do. They exist for the sole purpose of transferring risk.
So don’t let an agent start telling you about the “best thing since sliced bread” annuity that he thinks everyone should own. Instead, tell them exactly what you want the money to solve for from a contractually guaranteed standpoint, and then ask if a policy exists to transfer that specific risk for you. Hold the agent’s feet to the fire to only show contractual guarantees with no hypotheticals, and have them show you solutions from 2 to 3 different carriers. Remember, it’s about you, not the agent. Make sure you always keep it that way.
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