Learn to Take Your Vitamins, Think Like a Tortoise and Comprehend the Real Meaning behind the Annuity
(Part 1)
We both know that there is an emotional bridge that exists between the scintillating idea of an investment and the more mundane concept of a guarantee through insurance. Peers often assume that to cross from the former to the latter involves a lowering of expectations, or what one might call a “throwing in the towel” of sorts.
In other words, you might be crossing this bridge of emotions NOT because you want to, but because you have to.
Well, as an annuity agent myself, I prefer to straddle this particular chasm in a different fashion – especially as it pertains to explaining these annuity concepts to you.
Instead of furthering your all-consuming preoccupation with (nefarious) future potential rates of return, I am going to ask you the following question:
“What financial instrument are you aware of that exists in which you will have more guaranteed spendable income in retirement?”
This loaded question is likely to elicit a response from you such as the following:
“That depends upon how well my current portfolio will do.”
To which I must respond with:
“You are correct – it depends. And so how would it feel for you if you never had to depend?”
Now, since I know you still pulse with the vim and vigor of “rate of return” expectations, I must at this point gently remind you of the 7 risks in the retirement stages of life. No one has articulated these “stage of life issues” retirees face better than the author Wade Pfau, (Ph.D. Economics – Princeton), a CFA who wrote, “How Much Can I Spend in Retirement ?”
Wade’s philosophy of retirement in the USA, to which I subscribe, is encompassed in the 7 risks that he states in his book, which are:
1. Reduced Earnings Capacity
2. Decreased Cognition
3. Unexpected Expenses
4. Investment Risks
5. Inflation Risks
6. Unknown Longevity
7. Diminished Spending Capacity
A variety of premium amounts placed into different types of annuities (SPIA, DIA, INDEX, FIXED) that serve specific needs for you at future specific times, can mitigate ALL of the 7 risks in retirement listed above in varying degrees and totality BETTER than ANY OTHER FINANCIAL INSTRUMENT.
The key to your acceptance of this argument is simply to analyze your current financial allocations ability to meet these 7 risks.
The problem you are facing, my dear client, is not a “rate of return” problem (although you think it is).
The real problem is the viability of your spending monies as future time envelops you – and me – in these 7 inevitable financial perils.
It is a darn good thing that there exists a unique financial instrument in this world that is a synonym of the actual word “time” within the word itself! The Latin origin of the word annuity is “year,” a measurement of time itself.
Stay tuned for Part 2: “Financial Dentistry – Why the Process of Obtaining an Annuity can sometimes be Unpalatable.”
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