Fixed Indexed Annuities with Income Riders will be the most important investment of the next 20 years.
That is a statement that will stand the “test of time.” They are just what the doctor has ordered, they are “longevity insurance,” they are “sugar loafs.”
For so many years, our products have been the butt of jokes by brokers from coast to coast, stockbrokers that is. Not only were we the ugly stepchild, but we weren’t even allowed into the family. They kept us out in the barn with the livestock.
Many of us have always believed in our products, but not just selling them but by buying them. What happened? Why the sudden change about annuities. Years ago, David Townsend and I invested our life’s saving in our industry, and we bought the namesake of our industry, we bought www.annuity.com. The reason? We believed that the financial future of our generation (baby boomers) would need to depend on a product without risks, a product with guarantees, a product that could be used as lifetime income.
Ever hear of a term called “mortality or longevity risk”? The definition is simple, what happens if you live too long? What happens when the money runs out, and you haven’t? What happens when living longer becomes even longer?
An annuity is a nearly perfect vehicle, first of all, the funds in an annuity are tax-deferred (a perfect tax situation). Then when you access the annuity for income, you are allowed to recover your original basis over a long term period to make the payout tax efficient.
Living too long, how about thinking about boat trips as an example. Ever been on a luxury cruise? My wife and I went to Alaska last summer on a 7-day look at Alaska cruise. I was amazed at how many of our cruising companions were in wheelchairs, using walkers and depending on oxygen tanks. Getting older doesn’t mean dying, it means still living and still staying part of life. Where would the money come from to keep living?
Insurance companies generally get a bum rap, if your car is in an accident, the company will typically raise your auto rates. What if your home doesn’t burn down and you paid all those premiums. You grip about having to pay the premiums each year and then gripe if you get nothing in return. Is that a rip-off? Or are you just lucky, either way, the insurance company is generally the bad guy. What about letting an insurance company hold your retirement money? Is that a rip-off? Look, someone has to and gets to keep your money, why should you care who holds it as long as you get what you want.
Outsourcing and guarantees are the secrets for me. If I can select a guarantee and have another “reputable” source manage the guarantee, then yippee! I get the benefit of the guarantee, and they get the benefit of holding my money, is that not a win-win?
Think of annuities as your foundation, right next to social security and a pension. You layer a financial foundation with guarantees. You know from those guarantees that your basic foundation will never evaporate.
As an easy test to explain annuities is to call them by another name, as an example let’s call them a “sugar loaf.”
Just imagine someone saying to you: “Mrs. Jones, how would you like to buy a sugar loaf, this sugar loaf is unique, when you add sugar to your sugar loaf, the sugar increases but you do not have to ever pay taxes on the sugar the sugar loaf earns. Plus the interest earned on the sugar in your sugar load is fully guaranteed, and the sugar loaf itself is also guaranteed. If something were to happen to you, the sugar loaf is handed to your family completely intact with absolutely no sugar ever falling off. If you decide to use your sugar loaf for retirement income, the sugar starts to fall off into your pocket, and no matter how long you take the sugar from your sugar loaf, it will still fill your pockets each and every month. Your sugar loaf doesn’t care how long you live nor how much sugar you enjoy, and it will stand there with you each and every month as long as you live. Even if you live a shorter than expected retirement, any unused sugar in your sugar loaf is now filling the pockets of your family.”
“If you could buy one of these sugar loaf’s would you Mrs. Jones?”
When you think of an annuity as a sugar loaf, could you even refuse it? Think of an annuity as your sugar loaf, think of it as longevity insurance. No matter how long you live, the sugar will always be in your pocket.
If the concept of annuities as a foundation of your retirement planning, what is there to be afraid of happening? Never forget the best term ever created for buying anything:
Buyer Beware!
