Annuities come in all sorts of shapes and sizes. They can be a great option for clients spanning the low to high risk spectrum of choices. At their core, annuities will grow tax deferred and avoid probate upon death. Additionally, fixed annuities offer a fixed rate of return that is often higher than what you can receive at the bank. Fixed index annuities offer upside crediting potential that is tied to a market index, but still maintains principal protection. For those who are more aggressive, variable annuities offer full market participation through the use of sub-accounts within the contract. Additionally, these products can add features, known as riders, to provide leveraged long-term care benefits, enhanced death benefits and lifetime income.
It is easy to see that annuities provide a lot of exciting different benefits, but when are annuities actually at their best?
Voltaire said it best when he stated “I advise you to go on living to enrage those who are paying your annuities. It is the only pleasure I have left.”
Here is a French philosopher living in the 1700’s, Age of Enlightenment, who totally understood how to stick it to the man! What do I mean by that? You see, all too often we lose sight of the fact that annuities are insurance products and insurance products are built to protect us against a specific risk. So, what risk does an annuity protect us against? It’s the risk of living too long, otherwise known as longevity risk. Did you know that 1 in 4 65 year olds today will live past the age of 90 and 1 in 10 will past age 95?*
Here’s another eye opener, according to the Employee Benefit Research Institute: the majority of baby boomers will run out of funds for retirement only 10 to 20 years into retirement.**
In other words, annuities are at their very best when they are in a position to do exactly what they were built to do in the first place, which is to provide guaranteed lifetime income. In today’s words, here’s what Voltaire was saying: “If you want to get the biggest possible return out of your annuities and really stick it to the insurance carrier, then just live a long time!” People today are living longer than ever before which means, when used properly, annuities are at their best right now!
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*Wells Fargo Retirement Survey (2012)
**The EBRI Retirement Readiness Rating:™ Retirement Income Preparation and Future Prospects, Employee Benefit Research Institute, 2011