Get the full story on annuities!
Ms. Helen Karr is a respected financial elder abuse expert. She was instrumental in getting the month of May designated as Elder and Dependent Adult Abuse Month in California. So, recently, when she told The San Francisco Chronicle (March 29, 2013) that a big issue on her radar was annuity and insurance fraud, I listened to what she had to say.
You see, I make my living giving financial advice to seniors, and that includes selling annuities.
I sincerely care about my clients. And while I would agree with Ms. Karr, that an annuity is not for everyone, it would be very easy for readers (especially seniors) to misunderstand her advice and think that all annuities are bad news. That would be a mistake.
Ms. Karr said, “If you’re already in your 70s and an insurance salesman tries to sell you [an annuity], and the fine print is that you can’t take out your money for 20 years without a very steep penalty, that’s an inappropriate product for that person.”
And I would agree.
But let me tell you a true story — a success story…
I had a client whose wife had been bugging him for years about the risk of running out of income in their really golden years. She refused to go on vacations because they were too expensive and she didn’t want to jeopardize their future. She is 70 and he is 76. Why does an annuity make sense for them?
Because they are setting aside funds they don’t want to lose. This money is to be used as a rock-solid base of a future lifetime income.
If all they wanted was easy access to their money, they would put it in a savings account. But it wouldn’t grow or provide them with a lifetime income. Besides, they have enough liquid money to cover emergencies.
How can you make sure you don’t outlive your $$?
These days, people are living longer, especially here in Marin. This couple was concerned they would outlive their savings. That’s a real concern. And they wanted to ensure their savings would keep pace with inflation and increases in the cost of living. But investing all of their portfolio in the market was way too risky, and they weren’t comfortable with that option.
So they chose an increasing hybrid annuity for about half their portfolio.
They are wise and prudent people. Not only had they created a nest egg for their retirement, they were comfortable sticking to a budget and living within their means. I was able to work with them to design an annuity that would provide them with a guaranteed lifetime income. Their investment will grow with the market to mitigate inflation and increases in the cost of living. But it will not be at risk, because it is shielded from market volatility.
The company guarantees their investment, and the company is one of the largest, most stable financial institutions on the planet.
They won’t need to worry about the ‘very steep penalties’ (the surrender charges), because they have planned carefully to live within their means and won’t need to ever take more than a 10% free annual withdrawal. Their Social Security combined with their guaranteed annuity income will cover their costs . . . for life!
I am thrilled that these good people, who have worked a lifetime to build a substantial estate, can now relax. They know that they can count on an income for life that will increase when the market goes up and that will never run out even after their principle runs out!
Have they lost control of their money? On the contrary. They’ve gained control of their money. They’ve made a wise investment.
The number one concern of seniors and elders is that they might run out of income in their really old age. Not this couple! She was so relieved to know that they don’t have to worry any more about ever running out of income, they went on vacation to celebrate . . . at her suggestion!
©2014 Tom Pattinson