By Paul Breslau, Breslau Insurance & Benefits Inc.
As I write this on Friday, December 21, stock markets continue an epic year-end retreat. A real estate industry expert just advised me that the residential and commercial markets could soften due to increasing interest rates, cost of capital, and construction costs. What will 2019 bring?
Using annuities as part of your financial plan is an action recommended for many people in their 50s and 60s. In 2006, I wrote an Airpark News article titled To Annuity or Not To Annuity (now found at breslauinsurance.com/articles/05-06.pdf). One year later in 2007, the stock, real estate and other markets started crashing.
Seven years later, the markets had recovered and at age 60 I took my own advice and purchased two annuities in 2013. The objective was to diversify a portion of retirement assets away from stocks and bonds and into professionally managed, safe alternatives.
Today, with the stock markets in retreat and talk of a recession, there are reasons you should also consider annuities for a portion of your planned retirement income. This article shows the high-level reasons to consider annuities.
Lifetime Income – Annuities are designed to pay monthly or annual income for as long as you live. With life spans increasing, annuities are an excellent supplement to Social Security benefits, which also pay for a lifetime. Other sources of income terminate after the last stock, bond or real estate dollars are liquidated. With annuities, if you live a long life, you win. If you die soon, you lose, although there are optional protections such as payouts for the lifetime of the husband or wife, whoever lives longer.
Growth – Fixed-annuity owners have a choice of growth options ranging from interest-only to tying returns to a stock index such as the S&P 500. In Arizona, a licensed insurance agent with annuity certification can help with these options. This article only addresses fixed annuities.
Tax Savings – Income within an annuity builds tax-free over all the years. This is unlike a capital gain or a CD interest, for which taxes must be paid in the year earned. An annuity can also hold qualified retirement funds.
Diversification – Stocks, real estate and most other investments are cyclical. With annuities, the invested amount never goes below the high point of the prior year-ending value. It is good to have some assets on both sides of this equation.
Annuity Checkup – If you already have one or more annuities, there are reasons to check to see if exchanging for a new one might be advantageous. This includes modern features like long-term care benefit options.
Additional advantages include: Annuities have options for withdrawing a portion of the fund penalty-free each year; provisions for long-term care protection can be included; annuity values are generally protected from probate and creditors; annuities values are not included in family assists for your children’s FAFSA student aid applications.
There are no limits to how much can be put into an annuity, unlike other tax-deferred retirement accounts such as 401(k)s and IRAs. There are lifetime income riders that guarantee higher returns.
Disadvantages to annuities include complicated provisions and surrender charges in the early years. Another thing often mentioned that I do not agree with are the commissions. Annuities are long-term conservative assets. Over these long time periods, if you compare the total commissions to the fees and charges of other options, on average they are similar.
The two annuities I bought in 2013 were suitable to my long-term financial objectives. Annuities may be an excellent option for a portion of your assets. The only way to find out is to speak with an agent or advisor who is knowledgeable on annuities and who is open-minded about their advantages.
I am now partnering with leading local experts in all lines of insurance and business services. Please reach out to me at 602-692-6832 or Paul@HRaz.com for an initial conversation, evaluation or referral.
Paul Breslau, Registered Health Underwriter (RHU), Registered Employee Benefit Consultant (REBC), Chartered Life Underwriter (CLU), Chartered Financial Consultant (ChFC), Chartered Advisor for Senior Living (CASL), is President of Breslau Insurance & Benefits Inc. Contact: 602-692-6832; www.HRaz.com; Paul@HRaz.com.