THE ANNUITY TRUTH
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Misunderstanding #4 - "The annuity company only gives me some of the stock market gains, and it keeps the rest!!
Annuity Truth - The 1st part of the statement is correct, but the 2nd part is false. Here are the details:
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- This "Misunderstanding" is speaking about one of the ways in which a Fixed Index Annuity, or FIA, is able to capture & actually "lock in" interest if/when the stock market moves higher over a 12 month period. Then, if/when the stock market declines or crashes in subsequent years, the interest captured will not be lost.
- Let's be clear - comparing the stock market to an FIA is NOT an "apples-to-apples" comparison." An FIA will NEVER capture ALL of the stock market gains - it's an insurance product -it's a "risk transfer" product - and it's NOT an "investment."
- The FIA gives the owner the opportunity to earn an interest that's higher than what he/she could earn in a fixed rate CD, but without any risk of losing money if the market crashes.
- If you want all of the "stock market gains," you need to be willing to accept all of the "stock market losses," and the possibility of losing some of your money if the stock market declines.
- People who own FIAs decided they didn't want any part of that - they decided they didn't want to risk losing any of their money by placing it in the stock market .
- Re: "stock market gains," think about this - "stock market gains" (and "stock market losses") are only "paper gains" and "paper losses," and are never actually "realized" and "captured" until you sell the shares of stock or mutual funds. I'm sure you remember what happened in the "DotCom Crash" of 2000-2001 and the "Great Recession" crash in 2008-2010. Even though your accounts may have been at all-time highs prior to the crashes, the values of the accounts went down when the markets crashed, and it's because the gains prior to the crashes were never "locked in."
- Instead of an R.O.I. (Return On Investment), Fixed Annuities earn interest - (remember when we were young and had our 1st savings accounts, and we earned the standard 5.25% "interest" on our "passbook savings account? " Once that interest was added to our accounts, it couldn't be lost - it was "locked in"...) - that same concept applies to Fixed Annuities.
- "R.O.I" (Return on Investment) is not the same as "Interest Credited" to your account
- Re: the 2nd part of the statement - it's 100% FALSE. Annuity companies DO NOT "keep the difference" - it's in the annuity companies' best interest for their clients' annuity contracts to perform well, since that will lead to additional clients for the annuity companies...
- Watch this short video - it does a great job explaining what the annuity carriers that issue annuities actually DO with the money they receive, and about the regulations they must deal to maintain their designations as "legal reserve" insurance companies: https://www.safemoneyhouston.com/safe-money-contracts.html
- The bottom line is this - money placed into a Fixed Annuity contract is literally "insured & guaranteed" against any losses in the stock market, and money placed into the stock market is NOT "insured and guaranteed." Period.
- I'll be happy to visit with you and discuss, in detail, exactly how annuity carriers stay in business and are able to pay their employees, but "keeping stock market gains" from their clients' accounts is NOT the way their business models work.
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Misunderstanding #3 - "When I die the annuity company keeps my money!!"
The Annuity Truth - the short answer to this Annuity Misunderstanding is:
"The annuity company only keeps the money if you let them..."
Here's what I mean:
So... the only way in which your money remains with the annuity company when you die is if you agree to it when you complete the annuity application, and then you agree a 2nd time when the annuity contract is delivered, and you're able to review the contract during a 2 week "free look" period.
Last thing - when my mother and father died, each was receiving his/her guaranteed monthly income from Social Security and the Texas Teacher Retirement System (TRS).
Because Social Security & pensions are, in fact, annuities, whatever balance that remained in my parents' Social Security & pension accounts stayed with Social Security and the Texas TRS, i.e. Social Security and the TRS did NOT send me the balances in my parents' accounts...
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The Annuity Truth - the short answer to this Annuity Misunderstanding is:
"The annuity company only keeps the money if you let them..."
Here's what I mean:
- 99% of my clients receive their guaranteed lifetime income payments by using an Income Rider. Then, whenever the client or the client & spouse die, 100% of the balance in their Retirement Account goes to their heirs outside of probate - the annuity carrier does NOT keep the money
- For the other 1% of my clients who are receiving their lifetime income payments, they decided not to use an Income Rider, and they specifically chose to receive their payments as "Single Life" or "Joint Life" annuitizations, similar to the payouts from their pensions or Social Security. They had specific reasons to receive their payments as "Single Life" or "Joint Life" payments.
- And, let's not forget people who die when their annuities are simply earning deferred interest, i.e. they're NOT receiving a lifetime income from their annuities - they're simply using an annuity to safely grow their money tax-deferred.
So... the only way in which your money remains with the annuity company when you die is if you agree to it when you complete the annuity application, and then you agree a 2nd time when the annuity contract is delivered, and you're able to review the contract during a 2 week "free look" period.
Last thing - when my mother and father died, each was receiving his/her guaranteed monthly income from Social Security and the Texas Teacher Retirement System (TRS).
Because Social Security & pensions are, in fact, annuities, whatever balance that remained in my parents' Social Security & pension accounts stayed with Social Security and the Texas TRS, i.e. Social Security and the TRS did NOT send me the balances in my parents' accounts...
Questions? Comments? Fill out the "Ask Rick A Question" box - your questions come directly to my email Inbox...
Misunderstanding #2 - "Annuities Have High Fees!"
The Annuity Truth: At Conservative Retirement Solutions, the only annuities we offer, i.e. "Fixed Annuities," "SPIAs" (Single Premium Immediate Annuities), and "DIAs" (Deferred Income Annuities), have NO mandatory fees. Period, end of story.
There is ONE type of Fixed Annuity, known as a Fixed Index Annuity, that does have an optional rider available, and there is an annual fee if that rider is added to the Fixed Annuity.
The annual fee is ~ 1.0% - 1.2% for this optional rider. Many clients want it and love it, and other clients decide they don't want it...
And, because it's optional, it can be canceled at any time.
Then, if the rider is canceled, the Fixed Index Annuity no longer has fees of any type.
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The confusion comes from the fact that "Variable Annuities" do have mandatory fees that can range from 2.5% per year to 4+% per year, and that's EVERY year.
I think that people hear the word "annuity" and assume all annuities are the same.
Well, not so much...
So, let's sum up this "Annuity Truth:" Many Variable Annuities do tend to have high fees that are mandatory...
As I mentioned above, we DO NOT OFFER Variable Annuities.
Fixed Annuities, SPIAs and DIAs do not have ANY mandatory fees, and only one type of Fixed Annuity - the Fixed Index Annuity - has an optional fee for a "Guaranteed Lifetime Income Rider."
Questions? Comments? Fill out the "Ask Rick A Question" box - your questions come directly to my email Inbox...
The Annuity Truth: At Conservative Retirement Solutions, the only annuities we offer, i.e. "Fixed Annuities," "SPIAs" (Single Premium Immediate Annuities), and "DIAs" (Deferred Income Annuities), have NO mandatory fees. Period, end of story.
There is ONE type of Fixed Annuity, known as a Fixed Index Annuity, that does have an optional rider available, and there is an annual fee if that rider is added to the Fixed Annuity.
The annual fee is ~ 1.0% - 1.2% for this optional rider. Many clients want it and love it, and other clients decide they don't want it...
And, because it's optional, it can be canceled at any time.
Then, if the rider is canceled, the Fixed Index Annuity no longer has fees of any type.
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The confusion comes from the fact that "Variable Annuities" do have mandatory fees that can range from 2.5% per year to 4+% per year, and that's EVERY year.
I think that people hear the word "annuity" and assume all annuities are the same.
Well, not so much...
So, let's sum up this "Annuity Truth:" Many Variable Annuities do tend to have high fees that are mandatory...
As I mentioned above, we DO NOT OFFER Variable Annuities.
Fixed Annuities, SPIAs and DIAs do not have ANY mandatory fees, and only one type of Fixed Annuity - the Fixed Index Annuity - has an optional fee for a "Guaranteed Lifetime Income Rider."
Questions? Comments? Fill out the "Ask Rick A Question" box - your questions come directly to my email Inbox...
Misunderstanding #1: I HATE ALL ANNUITIES!!
The Annuity Truth: WOW! That's a pretty strong statement - as my friend Stan (the Annuity Man) Haithcock is fond of saying:
"Saying you hate all annuities is like saying you hate all restaurants. It makes no sense, and the statement is just silly."
I have a couple of questions for you to consider:
The reason I'm asking those questions is this - Social Security and your pension are examples of annuities - guaranteed "lifetime income annuities."
They pay an amount of money, every month, for the rest of your life, regardless of how long you live. That's the definition of an annuity.
An annuity can also earn tax-deferred interest, but for the purpose of answering this "Misunderstanding #1," an annuity is a financial product that pays a guaranteed amount of money, every month, for a specific period of time, up to and including the rest of your life.
So - just to be clear - you can't have it both ways - you can't "hate all annuities" while you're receiving annuity deposits every month in your bank account.
I don't know about you, but receiving guaranteed "paychecks for life" sounds like a pretty good thing from where I'm standing...
Questions? Comments? Fill out the "Ask Rick A Question" box - your questions come directly to my email Inbox...
The Annuity Truth: WOW! That's a pretty strong statement - as my friend Stan (the Annuity Man) Haithcock is fond of saying:
"Saying you hate all annuities is like saying you hate all restaurants. It makes no sense, and the statement is just silly."
I have a couple of questions for you to consider:
- Do you hate getting your Social Security check every month?
- If you retired from a company that offered a pension, do you hate getting your pension check every month?
The reason I'm asking those questions is this - Social Security and your pension are examples of annuities - guaranteed "lifetime income annuities."
They pay an amount of money, every month, for the rest of your life, regardless of how long you live. That's the definition of an annuity.
An annuity can also earn tax-deferred interest, but for the purpose of answering this "Misunderstanding #1," an annuity is a financial product that pays a guaranteed amount of money, every month, for a specific period of time, up to and including the rest of your life.
So - just to be clear - you can't have it both ways - you can't "hate all annuities" while you're receiving annuity deposits every month in your bank account.
I don't know about you, but receiving guaranteed "paychecks for life" sounds like a pretty good thing from where I'm standing...
Questions? Comments? Fill out the "Ask Rick A Question" box - your questions come directly to my email Inbox...
Welcome To "The Annuity Truth"
"Rick - I HATE ALL ANNUITIES!!" - answered
"Rick - I've heard that annuities have high fees!" - answered
"Rick - When I die the annuity company keeps my money!!" - answered
"Rick - The annuity company only gives me some of the stock market gains, and it keeps the rest!!" answered
"Rick - The annuity company locks up my money and I can't get it if I need it!!"
etc...
etc...
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Perhaps you've heard people make statements like these, or perhaps you've personally made statements similar to the ones above.
Like so many other "one-size-fits-all" statements, the statements above are not accurate, and need more information.
"The Annuity Truth" page is here to provide that information.
Consider this - you and I have health insurance, car insurance and homeowner/renter insurance because we don't want to "be on the financial hook" if we get cancer, have a car wreck or our home burns down.
Annuities are issued by insurance companies, and people own annuities because they don't want to deal with two financial risks that every Baby Boomer must face during retirement - the possibilities of:
- losing money in the stock market, and
- running out of money, i.e. outliving their money.
People use annuities as a way to "off-load" these retirement-related risks, and "put these risks on the backs of insurance companies" instead of each retiree having to personally underwrite and "be on the financial hook" for each and every retirement-related risk.
You and I go to a doctor if we have health-related questions about a prescription or a medical procedure, and we go to our auto mechanic if we have question about our car's air conditioning or transmission.
We're all familiar with doctors, mechanics, plumbers and other professionals who are experts in a given field, and so we feel comfortable seeking their advice and opinions.
But, most Baby Boomers are not familiar with annuities, and the ways annuities can be used to provide contractually guaranteed solutions for common retirement-related problems and concerns.
That's why I've started "The Annuity Truth" page.
I'm an expert on Fixed Annuities, Single Premium Immediate Annuities and Deferred Income Annuities, and knowledgeable about the many ways in which these insurance-based retirement instruments are used to a) eliminate stock market losses, b) provide guaranteed income for life for a couple or individual, and c) solve various retirement-related and legacy-related problems.
What you'll find on this page are correct and accurate answers to annuity questions - that's why this page is titled: "You CAN Handle The Annuity Truth!"
I encourage you to "A.M.A. (Ask Me Anything)" about annuities - feel free to ask your question in the box on this page. I'll answer any "A.M.A." question I receive on this page.
And, if you want to submit a question but don't want to give your name, just put "John Doe" and be watching on this page for your answer - I'll address the answer to "John Doe" or whatever name you used...
Finally - here's a link to a video on this website you might find interesting - it's an "Annuities 101" video and it gives an overview of the various types of annuities:
https://www.safemoneyhouston.com/annuity-primer.html
And now... on with the show - let's get some annuity "misunderstandings" cleared up!
Sincerely,
Rick Dennis
August 16, 2020