Do you have questions about whether to buy an annuity? If so, you are in the right place.
I am going to reveal to you what I have learned after 20+ years as a financial advisor.
First of all, understand that nearly everything you have heard about annuities has likely come from someone who has something to gain (or lose) by your decision.
Those who sell annuities may highlight the benefits of using an annuity in your planning.
Those who are in the “money management” business may focus on the fees and the restrictions of an annuity.
So, you should consider your source before taking the advice of the pros.
Now, in full disclosure, I have and do recommend annuities when I feel they are suitable.
And I also suggest people not use them when I deem them not to be suitable.
So, my opinion about whether to use an annuity is – it depends.
My problem is not with annuities as much as it is with the financial services industry as a whole.
I have heard annuity salesman talk about annuities like everyone should own one because of the features of an annuity.
And I have heard investment salesman talk down about annuities because it goes against their talking points of relying on stock market performance.
So, who is right?
Well, in my opinion, they are both wrong.
It is ridiculous to think that you should always buy an annuity and it is equally ridiculous to say that you should never buy one.
If you feel like I am adding to the confusion hang with me…
The truth is that annuities are complex and may not be suitable for a lot of situations.
For example, if you want to be invested in the market long term then you are not likely going to use an annuity.
For someone investing long-term in the markets, your focus may be on accumulation making performance and low fees the priority, which often eliminates the use of the majority of annuities.
However, if you want to produce income from your money or want to protect it from market losses then some variation of an annuity would be something to consider.
For someone wanting to protect either their principal or their income then fees and performance are not as important as the protections the annuity contract may provide.
Generally speaking, annuities may carry higher fees than the majority of mainstream investments. The fees are charged for the “insurance” the annuities offer that transfers certain risks from you to the insurance company.
I feel insurance agents and investment advisors may not have clearly communicated these facts and have confused people about whether buying an annuity is appropriate.
The fact is that annuities are not in competition with investments at all.
Annuities and investments are totally different things and are used for different purposes.
If you have a desire for growth using the market then stay away from most annuities.
If you have a desire for some insurance on market risk or income guarantees then consider an annuity.
So, as you can see it is never a one size fits all. There are no absolutes one way or another.
It all depends on what you are trying to accomplish.
PS – If you have questions about annuities let me know. I am happy to discuss these with you and try to point you in the right direction.
Investments are inherently risky and will fluctuate with changes in market conditions. Investment decisions should be based on your individual goals, time horizon and risk tolerance. Consideration should be given to the possible loss or part of all of principal invested. No single investment strategy can ensure a profit or protect against a loss.
Guarantees of an annuity are based on the claims paying ability of the issuer.