Are Fixed Annuities a Good Idea
Does It Fit Your Goal?
Today's topic is one that I've done before, but I need to repeat myself so you will understand the eccentricities, the details, the specifics, all that good stuff. They're called facts about annuities. Today's topic is, are Fixed Annuities still a good idea? I think a bigger question is annuities a good idea?
Let's talk about annuities in general, which is a good idea. There are Fixed Annuities or charitable gift annuities; there are annuities for income; there are annuities for legacy; there are all kinds of annuity types. For all the people saying, ''I hate all annuities then, I hate them all. First of all, you're in what's called an annuity hypocrite because every single person already owns an annuity. You own Social Security, the best inflation annuity on the planet.
Are Fixed Annuities a good idea? Well, it's very simple in the Stan The Annuity Man® world that is unicorns and butterflies. No. It's about facts, it's about guarantees. There are two questions you have to ask yourself. Number one, what do you want the money to do contractually and when do you want those contractual guarantees to start? That is the basics of do you need an annuity?
To add to that, I've come up with a very easy-to-understand acronym called PILL. P stands for principal protection. I stand for income for life. L stands for legacy, and the other L stands for long-term care or confinement care. In-home care stuff that everyone's worried about. Principal protection and income for life, legacy, long-term care, confinement care, and home care are things. If you do not need to contractually, keyword contractual, solve for one of those items in the PILL, you do not need an annuity.
Going back to the original question, are Fixed Annuities a good idea in 2022? Or if you're watching this later on 2029, or whenever you're watching this, it comes down to what you're trying to achieve. Some people say “well, I want market growth,” then don't buy an annuity. "Well, Stan, I want a reasonable rate of return." Then don't buy an annuity. "Well Stan, I need a contractually guaranteed pension plan for myself," then buy an annuity. Remember the two questions? What do you want the money to do contractually and when do you want those contractual guarantees to start.
I got a call the other day; the guy is like, "Well, my financial planner, said that I need to look at an Annuity." Really? That's like saying you need to go out to eat, go to a restaurant. That's how stupid that statement is or that question. There are many types of annuities. I asked him, what do you want the money to do? I need income, and then I said; when do you want that income to start? Well, right now. We’re down to an immediate annuity, a Single Premium Immediate Annuity.
I got another call recently; this guy calls up, saying, ''I just don't want to lose any money. Stan The Annuity Man, these markets scare me. What am I going to do?" You might want to look at a Multi-Year Guaranteed Annuity because what are the two questions? What do you want the money to do? Well, I just want to protect the principal. When do you want that to happen? I need to protect it now, Stan, The Annuity Man. Great. A Multi-Year Guaranteed Annuity is a good fit because you can get short durations. You can lock in a guaranteed interest rate, and it's the annuity industry version of a CD, so he liked that. There are no moving parts, no annual fees, no market attachments, and nothing to track. He's just going to get a guaranteed percentage interest rate for a specific period of time.
Are Fixed Annuities a good idea? If you're looking to transfer risk, remember, annuities are contracts you're transferring the risk to the annuity company or carrier. However, you want to describe them to solve the specific goal. Remember the goals. Income, principal protection, and confer live legacy or long-term care confinement care, you're transferring the risks for them to do that. That's when it's a good idea.
What do you want the money to do contractually and when do you want those contractual guarantees to start.
Some people call me and say that they don't know if they need income. Well, then you probably don't need an annuity. Another thing to keep in your mind is you already own a Fixed Annuity. As I said, Social Security is a Fixed Annuity. Essentially, it is, and people say, "Well, I didn't sign no paperwork for an annuity, Social Security." I understand what you're saying, but what does Social Security do? It pays you for life. The older you are when you make the payment, the higher the payment. Sound familiar? Yeah, it's an annuity. The other thing about Social Security, which is good, is it increases with inflation when our politicians, both sides, deem it appropriate that they need your vote. They don't want the senior citizens to get mad, period, and they raise it, which is good.
If you need that type of increase with an annuity with a company like a carrier in the private sector, they're just going to lower the payments. You can get that increase, but it's not as pure as Social Security. Are Fixed Annuities a good thing? Should you consider them? Yes, if you're looking to transfer risk.
I want you to think about something. Fixed Annuities and annuity, the category of annuities, are the only product type that can solve for a lifetime income. You can create your pension, and in a pensionless world that we live in, where most private sector companies aren't offering the gold watch and the pension, you have to create that pension, that income floor that combines with your Social Security. I want you to ask yourself, do I have lifetime income insurance? Do I have retirement income insurance?
When I die, do I have that type of lifetime income insurance for my spouse or partner? There are a lot of you out there who are masters of the universe. You follow the markets, and keep up with you read the Wall Street Journal; you’ve been doing it forever. You trade online; you’re good at what you do. You've been managing the money or working in conjunction with a true professional, as a fee-only advisor, to do that. But what I'm asking you is what happens when your Learjet hits the mountain, when your Bentley hits the tree? What happens then when your Lamborghini flips and throws you out the front window, what happens then? Is everything set up from an insurance transfer risk for your spouse or partner and family? Have you done that?
You might need to consider holding your nose and saying, ''I need to take a portion of what I'm doing and start transferring risk if something happens to me." The best legacy product on the planet is life insurance, period, end of the story, I don't sell it. But it's great to have. It’s the best return on investment you'll ever see because you're dead.
But you need to think about income insurance, retirement income insurance, and that type of legacy insurance that you can put in place in annuities or contracts. We can customize the way you want to structure it to go live your merry life and drive 100 miles an hour because you know that things are in place.
Getting back to the original question, are Fixed Annuities still a good idea? Still a good idea in 2022, 2023, or 2024? The answer is yes. If you want to transfer risk and set up things contractually.
Never forget to live in reality, not the dream®, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.