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Annuity Planning

If You Aren’t Exploring Annuities, You are Missing a Possible Great Opportunity!

When it comes to planning for income, there are (3) common solutions:

  • Get income from bonds, the government with social security or maybe a pension
  • Bank money markets and C.D.’s
  • Insurance or annuity planning

Research has suggested that despite mixed messages, annuities add significant value, security and income potential. Dr Wayne Pfau, a leading expert with income planning, published his terrific study, A Broader Framework for Determining an Efficient Frontier for Retirement Income. His research suggests that the most efficient investment mix combined stocks and annuities, not stocks and bonds!

Roger Ibbotson, a legendary expert on annuities, also noted “fixed indexed annuities can outperform bonds in today’s low interest rate environment.”

I feel that annuities lower overall portfolio risk and allow for lifetime , guaranteed income! By solving for your required income needs in retirement with a guaranteed fixed income stream, it also allows you increased flexibility with other aspects of your portfolio and retirement planning needs.

Other research has suggested:

  • Annuities provide cheaper, more efficient ways to generate income than many perceived traditional solutions, like bonds or C.D.’s
  • Annuities reduce the likelihood of running out of money, increasing longevity
  • Annuity planning can be used to mitigate long term care risks 

Over the years, I have heard many of the same objections with annuities, like they are too complex, lower returns, expensive, lack of liquidity, commissions or my favorite, my advisor recommends against using them. It’s easy to address every one of these with clear, objective facts but it’s a trillion dollar industry for a reason.  Maybe because in the right situation, with the right product and education, they actually can actually add value for a piece of your portfolio!

I’m reminded recently of a retired couple that was dependent on the older husband’s pension benefit for a lion share of their retirement income. The wife was considerably younger and if he passed away, would lose his pension benefit. Unfortunately, it only covered him while he was alive. Most importantly, they wanted an income solution that could guaranteed replacing that income and a smaller percentage of their current portfolio diversified into fixed income annuity did an excellent job of addressing that concern. Ironically, we were even able to add income protection against a long term care problem with him because he questioned his health and longevity! 

They walked in expressing the same concerns that I alluded to early with annuities and left realizing that they had a perfect solution to meet their needs. “So many people are misinformed about annuities,” they exclaimed. However, by asking questions and learning more, we realized that a piece of our portfolio invested in an fixed indexed annuity made a lot of sense perfect sense.” She  went on to say “I feel sorry for people that are getting bad information or rushing to conclusions!”

The moral of the story, look under the hood to see what makes the engine tick! Fortunately, at Healthier Money, we learned the value of independent advice, educating people and doing what’s in the best interests of the client. It gives people the tools to make the best decisions to fit their needs, because maybe, just maybe, adding a fixed index annuity can give you a great opportunity!

Pat Moran has over 35 years of financial services experience and is a managing partner at Healthier Money. He is independent and specializes in financial education, reducing risks and tax favored strategies. He can be reached at (602) 571-1035 or www. 


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