Too Young for an Annuity, Think Again

In the elitist view within cocky wealth management groups, annuities are frowned upon and viewed as a non-sophisticated overpriced product that requires no skill to own, manage, or run.  And in some respects, they’re correct.  But in the larger picture, these highly skilled elite advisors cannot offer one of the greatest qualities that many (if not most) clients are asking for: Guarantees!  In other words, the insurance company that is issuing the annuity is guaranteeing your principle as long as they have the claims paying ability to do so.

At their core, annuities are long-term investment vehicles designed for retirement purposes.  In the past, they offered modest fixed interest rates which could defer taxable growth for a certain period of time, and offer an income over one’s lifetime.  A typical annuity owner would have been someone well into retirement, with limited assets, and little to no other income to rely on.  Today however, annuities can have hundreds of investment options, guaranteed minimum growth options, lifetime income options, increased death benefit options, long-term care integration, and a variety of surrender periods ranging from 10-years to ‘none.’  These optional features are generally offered through variable annuities and each come at additional costs and may have certain restrictions associated with them.

Today, it is possible to find something that fits your timeline, risk tolerance, and desired guarantees to help make your retirement goals more attainable.  With uncertainty being the operative word in our economic environment over the past decade, many younger income earners are opting to secure a portion of their money in an annuity.

Some investors in their early 40s are unwilling to invest in “the market (aka: Equities)” because of the fear of loss.  And no amount of education or encouragement from me or Warren Buffet or the Chairman of the Federal Reserve (Ben Bernanke) is going to convince them that being invested in equities is suitable for their respective investment timeline.  However, by becoming aware of the benefits of an annuity, it may allow them to get some of their money invested back into equities so they can participate in the upside potential of the market, while minimizing their downside risk of loss.  Let’s face it: People like guarantees.  But it’s difficult to have your cake and eat it too without accepting the risk that goes along with it.

One thing to keep in mind, especially for those investors further from retirement, is that withdrawals from annuities prior to age 59 ½ will incur a 10% penalty in addition to the payment of income taxes.  Further, annuities can have significant surrender periods during which withdrawals will result in surrender charges.  There are also additional fees associated with the product that are not found in many other investment options.

If you, or someone you know, have lost all faith in investing in the markets, give me a call.  I will arm you with all the information you need to consider giving at least some of your money a fighting chance to earn more than the dismal fixed interest rates prevailing today.