If you are like most of our clients, you already have some form of guaranteed income and have taken care to protect your assets.  In fact, you may have more than enough income.

But chances are also good that there’s still something about an annuity that appeals to you…. and you might not have put your finger on just what it is yet

So lets focus on the main elements of annuity contracts and see what that appeals the most to you.   The right annuity may just fit in perfectly to enhance your overall retirement plan.

Let’s look at the key components that can be isolated and maximized.

  • Safety: Annuities are a safe money strategy that may have better benefits that other ‘safe money’ asset classes like bonds and CD’s.
  • Growth: Annuities- and especially Index annuities- capture growth in good times and protect from losses in down times. Annuities offer safe growth and are are not subject to volatility.
  • Income: The traditional purpose of annuities is to produce income, and there are purpose built contracts for this.

Benefit: Safety

If it’s the safety of an annuity that appeals to you, there are a couple different product types to consider.

Fixed Annuities – sometimes abbreviated as MYGAs or Multi Year Guaranteed Annuities, offer a fixed rate of tax deferred growth and the guarantee of our principal against loss by some of the strongest financial institutions in the world.

Fixed Annuities are typically shorter contracts of 3, 5 or occasionally 7 years, and usually contain partial liquidity and surrender options.

Another safe option to consider are Secondary Market Annuities.  For a pure-play safety contract, look at Lump Sums.

Secondary Market Annuities are existing in force annuity contracts that can be re-assigned. The benefit stream is different for each one, but if you find a particular one that works for you, you’ll be rewarded with a higher yield than you’d find with any other type of annuity out there.

Benefit: Income

There are several ways to create income with annuities.

The most obvious choice are Immediate Annuities, sometimes abbreviated as ‘SPIAs’ or Single Premium Immediate Annuities.

SPIAS are a pure-play way to create income, typically for life, though they do have options for income lasting a certain number of years regardless of lifespan.

However, if you don’t need lifetime income, you will find a higher yield on period certain guaranteed income by using Immediate Income Secondary Market Annuities.   These offer a defined stream of income benefits at that pay to you or your heirs, guaranteed.

Benefit: Growth

Calling an annuity a growth investment would be misleading, so I’ll make absolutely clear we’re on the same page- Annuities are not pure-play growth vehicles.  They are, however, exceptional SAFE GROWTH vehicles.  There’s a big difference.

By Safe Growth, what I mean is that you can achieve a reasonable rate of return in an annuity in light of the fact that your money is guaranteed against loss and backed by the contractual promise and financial strength of a major insurance company.  Annuities are an insurance product, and you are, after all, buying an insurance contract!

So in that context, what are some of your safe growth annuity options?

GROWTH ORIENTED INDEX ANNUITIES

An index annuity is will not only guarantee against loss, but also provide growth when markets perform well.  By locking in gains and protecting against losses, your account rises steadily over time.

In fact, this is why the contracts were created in the first place.

Also, a growth focused Index Annuity is a contract geared specifically for maximum growth without additional riders or fees, and without the extra costs those bloated benefits bring.

USING GROWTH ORIENTED INDEX ANNUITIES

Here are three ways to use a ‘Growth Index Annuity’

  • Use As A Bond Alternative
    1. Index annuities instead of bonds offer three major enhancements-
      1. More Safety
      2. More Yield
      3. More Flexibility
    2. Take a minute to read our piece on Index Annuities as Enhanced Bonds
  • Use For Supplemental Income
    1. Using free withdrawals, an Index Annuity allows you to safely protect assets and give other investments time to mature
    2. You can reduce portfolio rick from systematic withdrawals in down markets.
    3. Use an annuity to provide period certain income for a short period of time before another source of income can be accessed. For instance, it is perfect for someone who wants to retire at age 62-65 but is waiting until age 70 to maximize social security payments.
  • Use For Portfolio Management
    • Annuities are a great portfolio stabilizer
    • Insulate a portion of your money from losses, and you free the remainder of your portfolio to be oriented for pure-play market based growth.

Here are a few other benefits of a growth focused index annuity:

  • Lower Cost– using a growth focused index annuity to produce income from the free liquidity provisions may yield a savings of 25% or more when you compare to the cost of an income rider. The truth is, you get more of the benefits for less money.
  • More Output– Income rider focused index annuity contracts typically assume less than 2% yield over life expectancy.  You can do much better than that, and still enjoy the same income, when you don’t buy the income rider.
  • Greater Flexibility– With the right growth contract, you can keep surrender schedules short and increase your flexibility for adjustments in the future.  Lifetime income contracts have much more restrictive terms that you may be better off to avoid.

For all these reasons it makes sense to shift your thinking from using bonds as a safe asset class, to using a good quality growth oriented index annuity.  The remainder of your portfolio is enhanced because:

  • A growth oriented index annuity allows you to spread risk and not concentrate drawdown risk on just one ‘bucket’ or asset class
  • When markets do well, you may wish to harvest gains by selling securities
  • When markets do poorly, you may wish to draw income from the annuity and avoid ‘reverse dollar cost averaging’ – the risk you carry by being forced to sell securities when they are down.

Overall, portfolios optimized with a growth oriented index annuity increase your overall safety by giving you a solid base of assets to take money out of if you need to that allows your other assets plenty of time to recover.

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