Financial Services in Peoria & Surprise AZ

Annuities

Annuities continue to be a topic of discussion in the world of Retirement, Investing, and Insurance, but this doesn’t mean there’s a warm fuzzy feeling surrounding these discussions. With so many different opinions on whether Annuities are or are not right for particular clients, or any clients for that matter; there is one simple method that has stood the test of time to determine where you land on the spectrum regarding annuities.
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GET EDUCATED.

..The Turning 65 Advisor is never one to tell our clients that anything is inherently bad. We lean more towards the understanding that – every client has their own set of goals in their life, these goals being made up by an accumulation of wants, needs, and if possible, desires. Carefully breaking down these three components will allow us to conclude what we feel is most suitable for possible clients.

When looking into what products are ultimately right for you in your retirement, it is likely that someone out there may bring up Annuities, or maybe you have found some opinions and facts on Annuities on the internet. Either way, for those who are beginners to Annuities, it is highly recommended that you do not first turn to opinion-based content regarding Annuities, rather; you should seek to understand the basics of Annuities. This will help you have a general idea of the basics regarding annuities.
Once you have the basics down, then it’s important to seek the advice of a professional who has a well-rounded understanding of annuity pros and cons. This is when you will begin to discover whether the Advisor’s perspective on annuities is based on genuine truths or motives that drive their business model. It is possible to have both factors in your business practice, but not as common as you may think.

What Are Annuities

In short, Annuities are vehicles that are established by Life Insurance companies to provide a holding place for assets (money). There are multiple types of Annuities and they all have different highlight features, however they all have one thing in common. They all exist within a Life Insurance Companies portfolio of products as sort of a “Sibling” to Life Insurance. While Life insurance is designed primarily as a protection in the event of Death or catastrophe during life, Annuities are primarily implemented as an income vehicle.
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This is a great place to start. When considering annuities, we ask our clients 1 basic question – “would you suffer in the event that your income was to decrease more than 20% or was to run out 20% earlier than anticipated? If our client answers “yes” to this question, then an Annuity should be considered.

All this being said, considering Annuities does not always mean that you purchase one. There are many clients who are simply not the right fit for Annuities, and this is where education is key. There are many Advisors in todays industry who believe everyone should have an Annuity, and there are Advisors who believe that Annuities are always bad. As stated before, The Turning 65 Advisor does not agree with either of these stances. Annuities are a tool that can be used to assist someone in accomplishing the goals they have set forth in their retirement. To explain this, we like to use “The Drillbit Theory”

What is “The Drill Bit Theory”?…

There are millions of Drillbits sold each and every year at hardware stores. How many people do you think wanted a Drill Bit? Well, the answer is NONE! Nobody who buys a Drill Bit, wants a Drill Bit. What they wanted was a hole… They needed a Drill Bit so they could drill their hole…

The truth of the matter regarding Annuities is the focus needs to be place on “what do annuities do for the consumer”. In most cases, Annuities are designed to provide a Pension Like form of income to the consumer. This means, an income that you cannot outlive, that will not fluctuate resulting from economic downturns. While there are many concerns to cover regarding Annuities, it is first important that we understand the basic “why” relating to the purpose of the common annuity purchase.
Aside from income protection, there are several estate protection components to Annuities that make them very appealing to many consumers. Many Annuities today have features that created extra Liquidity, Income, and Tax protections in the event that you as a retired individual need to access Long Term Care services, become Chronically Ill, have a major medical diagnosis and are terminally ill. These are just a few of the key benefits you may find value in when purchasing an annuity.
While there are some major pros to purchasing an Annuity, here are some things you should know. There are surrender penalties on Annuity contracts. Often between 4-12 years depending on the contract you purchase. While 12 years may sound like a long time to remain committed to a contract, many of these contracts are designed to provide Pension Like income, therefore; it may make sense to some consumers that the Annuity at hand is a Long Term Play within their retirement.

Interest rates

Interest rates within annuity products are often going to be lower than what you may see within other investment vehicles that you may compare them to, such as Mutual Funds, Brokerage accounts, stocks, Bonds, Etc. The idea is not to compare Annuities to these other investment vehicles, rather; understand how they are different. With annuities, you will often find yourself on the losing end of the equation if what you are striving for is a high yield of interest. While other investment vehicles will often outperform annuities in years where the stock market is booming, many types of annuities are not subjected to market fluctuation, therefore; you would not have to concern yourself with losing any principle or previous years interest due to market volatility.
That said, with annuities, Distribution is the name of the game. Often times, Annuities win in the department of creating a substantial livable and secure income stream to the owner – allowing you to focus on how you will spend your retirement with your family vs. concerning yourself with whether you will run out of income in your retirement due to longevity or market volatility.