Savers Prison

Saver’s Prison

Do you feel like you’re a prisoner?  With regards to your savings that is.  Remember the days when all of your retirement income came from the interest paid to you from your investments?  Miss those days?  Yes; we all do and unfortunately it does not seem likely that those days will return anytime soon.

Apparently some retirees have found a solution.

I know we have all heard this before- “the experts are surprised”—Well they are surprised again.

According to Beacon Research the top selling annuity product in the first quarter of 2012 was an immediate annuity.  That’s right the product that generates a negative knee jerk reaction from so many “financial advisers” and their partners in the financial press is being purchased at a record pace.  Yet, again the people are ahead of the so called experts. 

So what do these so called experts dislike about an immediate annuity?

Yes, I attend the training meetings, so you can think of me as your mole and here is what I hear: 

Outdated thinking point # 1 – Loss of future purchasing power due to inflation.

Reality Check- In the distant past this was mostly true. Currently there are new income annuities that offer cost of living increase or will increase income payments based on changes to the S&P 500.  Once increased the monthly payment is guaranteed to never decrease over your lifetime.  

Outdated thinking point # 2 – If you die the insurance company keeps any unpaid money.

Not anymore.  Most annuities will pay any remaining cash balances to your beneficiaries.

Outdated thinking point #3 – If a financial emergency happens you have no access to your money.

Reality Check – Most modern annuities allow the withdrawal of unpaid funds after a nominal early withdrawal charge and in some cases a percentage can be withdrawn each year without charge. 

With proper planning, emergency funds should be kept in very liquid accounts.  However, in the case of unforeseen extreme emergencies annuity funds can be accessed.   

Outdated thinking point #4 – Funds placed in an annuity are “dead money.”

The question is dead for whom?

Unfortunately some advisers feel this way because most annuities do not pay ongoing fees (commissions).  The entire equity financial service industry gets paid from ongoing fees generated by money under management and “money on the move.”  Every time your money moves it generates a commission for someone.

Not so with fixed annuities.   

Consider annuities as a “get out of Saver’s Prison card.” 

Fixed annuities average 3 to 4 times more interest than CD’s are currently paying. 

Index annuities could pay considerably more interest depending on the performance of the index they follow. 

Immediate income annuities which are currently the most purchased provide guaranteed lifetime with cost of living increases; Thus making it possible for you to spend all of your money plus some of the insurance company’s money before you die.  All the while you never have to worry about running out of income even if you live to be 120 years old.

You may ask questions in the comments or contact me privately Tim Barton, ChFC