Read several financial publications and you will find multiple strongly opinionated articles regarding annuities, some positive, many negative. Annuities may be one of the most misunderstood financial products and are not all created equal.
In today’s blog post, I hope to shed some light on the annuity subject. But, before I do so, it will be helpful to remind you of our philosophy at Master’s, regarding all financial products. We strongly believe that all financial products should serve a specific need, or provide a desired solution, within your personal financial plan.
Below, you will find a brief description of the four primary types of annuities. Immediately following, you will find “our take” on that type of annuity and the planning scenario(s) in which it could serve a specific purpose.
Single-Premium Immediate Annuities (SPIAs) – An investor deposits a sum of money with an insurance company that commits to making guaranteed payments for a lifetime, or an exact number of years. Master’s opinion: Because these annuity contracts are irrevocable, they are best utilized within a Medical Assistance spend-down strategy, or for an elderly individual that needs another guaranteed income source (while forgoing the right to the lump sum).
Multi-Year Guarantee Annuities (MYGAs) – This annuity looks remarkably like a multi-year CD from a bank. An insurance company pays you a guaranteed rate of interest (sometimes tax-deferred) for the specified years. Master’s opinion: These annuities do provide a viable planning solution for investment dollars that may need to be liquidated in several years, or as a viable “safe money alternative” to bank CDs.
Fixed Index Annuities (FIAs) – This type of annuity is heavily marketed, usually as a no-risk, “have-your-cake-and-eat-it-too” product. If you receive a free dinner seminar invitation, they will probably be promoting these products. Unfortunately, they are one of the most complicated, and most easily misrepresented annuity products, often using a “smoke & mirrors” approach to the facts. By the way, they generally pay the largest commissions of all annuity offerings. Master’s opinion: Buyer beware! These products show you fantastic proposals of what might happen if you invest in them. The problem is, they rarely deliver!
Variable Annuities w/ Lifetime Income Riders (VAs) – These annuities offer a genuine investment portfolio wrapped with the specified protection provided by the contract rider. Picture a wheel that propels your vehicle (the investment portfolio) with a tire that provides traction & cushions the bumps of the road (the rider). They do carry higher internal fees/expenses, when compared to a regular investment portfolio. Master’s opinion: These annuities are a useful planning tool for someone who needs another source of guaranteed income in retirement, in the absence of a pension, yet still wants to participate in the upside of the investment markets. However, due to their higher fee structure, they are not the best option if guaranteed supplemental income is not a priority.
I hope you found this brief annuity education blog helpful. We are always committed to keeping your best interests first. If you are offered a “can’t miss” annuity buying opportunity, talk with us before you make any decisions. We are here, and always ready to give you objective guidance and advice.
Thank you for giving us the opportunity to serve you! We consider it a privilege.