Are Annuities Safe?

“Are annuities safe” is the most common question asked about fixed indexed annuities. Knowing these common threats to your nest-egg will help you make informed decisions to protect your retirement assets:

  1. Longevity Risk: This is the risk of outliving your money. As we get older, our ability to accurately judge our own life expectancy is difficult due to the wide range of possible outcomes. There is no greater risk to retirement assets than longevity risk.
  2. Insufficient Lifetime Income: The evolution from corporate pensions to the private sector and extended life expectancy has put a burden on retirees. Baby boomers were understandably unprepared as this shift happened during their working years.
  3. Inflation: Like un-managed high blood pressure, inflation causes un-noticed, persistent damage. We recommend that retirees keep an eye on inflation risk.
  4. Improper Asset Allocation: The proper weighting of invested assets is critical.  Many retirement aged people state that a stock market correction keeps them awake at night more than anything else?
  5. Rising Medical Costs: This is the threat that can do significant and sudden damage.  There are annuities that double the income payments for a long term care event. We maintain the proper licenses and continuing education to counsel our clients about these.

  • Loss of Spouse & Cognitive Issues – Married couples and single people can expect to deal with the issue of cognitive decline during retirement. The loss of a spouse often compounds these challenges. Managing traditional investment portfolios are susceptible to criticism for being too complex and too difficult to understand for aging retirees.  Leading economists and professors throughout the world concur about the superiority of annuity income for the purpose of minimizing investment complexity in retirement.
  • Investment Scams: Be careful with anything that feels to good to be true. Better to be safe than sorry. Please contact me anytime for a second opinion.
  • Fees: The more transparency and disclosure, the better. Fees and other charges are similar to taxes levied against your investment portfolio. They add up. Over time, based on a 1% annual fee, a $1,000,000 portfolio will lose $100,000 over 10 years and $200,000 over 20 years; to management fees.  One advantage with annuities is that policyholders do not pay commissions from their annuity contracts. The commissions are paid from the balance sheet of insurance companies and they do not affect your individual contract.
  • Bad Advice: “No losses” is what retirees want most. We hear that concern on a daily basis and it makes perfect sense. At the same time, too many people have all their retirement assets invested in stocks and other high risk vehicles. Managing a portfolio to maximize income is a completely different objective than growing principal in your working years. It never hurts to get second opinions from professionals with different disciplines. It  is good risk management.
  • Market Losses: Once people are in or near retirement, they cannot recover from losses. In an indexed, income annuity, you will never incur principal losses of any kind. When markets have down years, the worst rate of return is zero.

Annuities are safe. The insurance companies are regulated by insurance departments and they submit their financial information to the rating agencies on an annual basis.  While the stock market reminds us how painful losses can be in retirement, annuities work the opposite way. Everything is guaranteed in fixed indexed annuities.

This partial list of retirement threats will hopefully be a good starting point to see where you may be vulnerable. The goal of our firm is to help our clients minimize these threats. Using the right vehicles and the right strategy, you will find peace of mind that may be lacking with more volatile alternatives.

Please call me at 561-869-4500 or email me, Ted Bernstein, about a complimentary consultation. Are annuities safe?

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