Annuities Ensure A Secure Lifestyle

Albert Einstein once described his theory of relativity by saying:  “When a man sits with a pretty girl for an hour, it seems like a minute.  But let him sit on a hot stove for a minute and it’s longer than an hour.”

Sit with an annuity for an hour, and a minute later you will see why they are worth every penny.  Sit with the market for a minute and you will soon feel the heat from the hot stove. 

It’s all relative.  Having an annuity is like having a life preserver thrown to you when drowning.

The stock market closed out a painful second quarter and left investors with heavy losses. The stock market’s performance for the first half of the year isn’t pretty.  The S&P 500 has fallen 7.6 percent and each of its 10 industries is down.  

Volatile categories, such as materials and energy, have posted the biggest declines.  Investors shouldn’t expect a quick turnaround either.  The third quarter is traditionally the weakest for the S&P 500.  Since 1990, stocks have fallen 1 percent on average from July through September.

Today’s retirees and pre-retirees face multiple challenges, including still-shrunken principal values following the 2008-09 bear market and rock-bottom interest rates.  There’s only so much you can do in terms of trying to predict the future.

Multiple retirement plans mean more complication and not necessarily more security for your old age. You could plan to receive a retirement income from many sources, pensions, retirement funds, registered and non-registered investments and other assets that comprise your full investment portfolio, but this, in itself, will not guarantee you a comfortable retirement.

Retirement doesn’t have to be about feeling paralyzed or about making uncomfortable compromises.  Saving and investments are necessary to safeguard our future from unexpected risks as well as to cushion ourselves from financial shocks. But at the same time, it is necessary to display an acute sense of financial prudence, especially, when it boils down to choosing investment tools. 

Money is what ensures a secure lifestyle, thus, people want to invest their money in ways that will ensure that it grows and assures them of savings and security in the future and especially for their retirement.

We can’t make people happy when things are crashing, but annuities can, at least get them to the point where they’re not scared. Having that cash enables investors to step back and look more realistically at the future. 

If you know you have a good solid income stream kicking in at retirement, it’s often possible to significantly increase the probability of success of your plan.

Burned once, shame on you. Burned twice, shame on me. So if there’s anything sort of new or special or different or clever, we’re extraordinarily skeptical and careful.  There is a phenomenal comfort factor in knowing that you can pay your bills from your annuity account and you can afford to wait for the world to get more rational. The point is, you can step back and think about what you really own, and you really won’t be worried that all those companies that you owned are going bankrupt.

Annuities are ideal for all types of investors, small and big. Whether you are a conservative investor or someone who also wants to benefit from the good performance of a stock market index, annuities can help you invest your savings accordingly and create a secure future for your retirement.  It means we can manage the portfolio much more tax efficiently because it means we have control over it, as opposed to the randomness of the market having control

Annuities can be set up literally to pay a check once a month to the local bank account so it meets with what [my wife and partner] refers to as the “paycheck syndrome.” People are used to getting a paycheck. So now with an annuity, they get a paycheck.

With annuities, investors are assured a pre-determined rate of return on their investment. Annuities are ideally used to create a retirement plan that ensures that the investors have a regular source of income after retirement. The annuity is perhaps one of the few financial tools that has such a long and rich history and yet has been reinvented and modified in order to satisfy the changing financial needs of people.

A fixed indexed annuity (FIA) is a type of deferred annuity contract that was developed several years ago in an attempt to maximize the growth rate of the contract while still guaranteeing the protection of your principal.

Remember, as you earn a higher interest rate on your money, the risk to your principal increases also. A FIA tries to provide both, a higher interest rate than a traditional fixed annuity and principal protection not found in the market.

The way that this is accomplished is that the contract is tied into one of the major stock market indexes like the S&P-500 or the NASDQ-100. As these indexes increase, the increases are added up, and as they decrease, the decreases are added up. At the end of the year, the total increases and decreases are all added up (subject to caps, see below), and if positive, that’s your interest rate for the year. If the total is negative, you’ll earn the minimum interest rate (e.g. 3%) that’s guaranteed in the contract.

The way a FIA does this is to cap your growth to a predetermined amount, usually around 2% per month. Any growth above this cap level goes to the company. This allows the company to guarantee that in the event of negative stock market growth (i.e. loss); your principal would still earn the guaranteed minimum rate of 3% or so. This allows you to partake in market growth while protecting your principal from market loss. FIA’s provide a great combination of growth and protection not found anywhere else.

The main benefit of lifetime income annuities is that no matter how long you live; your income stream would never end, thus protecting you from outliving your money. The longer you live, the more money you will be paid, even if the company ends up paying you more than you gave them originally. If you die before the company pays you what you originally gave them, you can arrange as part of the contract for your beneficiaries to receive at least the amount you originally paid the company plus interest. The real protection here is if you live a very long life!

Since the life expectancy rate is rising, some seniors are left with many years of retirement to fund. On the other hand, many people have not saved enough to cater for their needs as long as they will be privileged to live. Also, some people fear that as they grow older their expenses might rise. For example healthcare’s costs may differ at 80 as compared to what it may be at 60.  Having an annuity diminishes the worry that a person might outlive all his investments and savings as he grows older.