With life expectancies greater than ever, retirement could very likely be the longest phase of our client’s lives. Therefore, it is absolutely imperative for retirees to have a plan in place that;
- Provides the ability to spend and enjoy their money in retirement
- Protects them from “living too long” and outliving their income
Since retirement income planning is an extremely important and complicated process, this is something retirees should not to attempt to do on their own. In addition to the risk of large investment losses and outliving their assets, there are other major challenges and considerations such as taxes, inflation, stock market and interest rate volatility, rising healthcare costs, taxes, and much more.
Why Consider an Annuity?
Below are 10 reasons why annuities are an excellent alternative – and why:
- Growth Potential – Clearly every retiree wants their money to grow over time. The reason growth is so important is not only to accumulate more wealth, but also to fight against the aforementioned many “money predators” such as inflation, taxes, planned obsolescence, technology changes, rising healthcare costs, long-term care, unexpected losses or expenses, etc.Most retirees will tell you they prefer not to spend their principal, and would rather live off the income generated from their principal.Therefore, in order for their income to keep pace with things like inflation, most annuities offer a well-diversified array of investment options to choose from which offer the potential to keep pace with one’s changing lifestyle and income needs over the long term.
- Safety Provisions –By far, the two biggest financial fears for most retirees are:
- Losing money
- Running out of money.
The fear of losing money and/or running out of money is not only understandable, but also extremely critical. In fact, I firmly believe that “90% of a financial professional’s job is avoiding large losses”.
If your clients are taking income from their retirement assets and suffer significant losses (particularly in the early years of their retirement and income distribution) this can be extremely devastating and sometimes irreparable. In other words, the combination of large losses and withdrawing income can dramatically increase the probability of running out of money.
Therefore, annuities provide an alternative and solution, since most contain contractual guarantees that can insulate your clients against outliving their income, even if they suffer large investment losses.
- Tax Efficiencies – I always jokingly say that my least favorite uncle is “Uncle Sam”. I have yet to meet someone who truly enjoys paying taxes. And of course, taxes come in all flavors; ordinary income tax, capital gains tax, taxes on dividends and interest, state taxes, estate taxes, and more.John D. Rockefeller once said; “The fastest way to accumulate wealth is to make sure you never pay tax on income you don’t use.” That may be one of the most brilliant statements I’ve heard aside from Einstein’s theory on compound numbers.Annuities can offer two unique advantages with regards to taxes. First, while non-qualified monies are accumulating inside an annuity, they are growing on a tax-deferred. Put another way, a client’s monies are not subject to tax consequences such as capital gains, dividends, and interest. Second, many annuities offer clients with non-qualified monies with the ability to provide tax-advantaged income when they are in the distribution stage.
Since we can’t beat the unbeatable opponent (the IRS), annuities provide our clients with options to minimize or avoid many forms of unnecessary taxation for non-qualified monies – where applicable and appropriate.
- Income You Cannot Outlive – Given the exponential growth of the baby boomer generation, and the advancements made in modern medicine, life expectancies today are greater than ever.For example, when Social Security was first enacted in 1933, the average life expectancy for a male was approximately 59 years old…and yet Social Security didn’t start paying benefits until age 62!Since males today have an average life expectancy of approximately 85 years old, it is easy to see why we are having such a tremendous battle with Social Security benefits. Many studies show that by the year 2030, more than 2/3 of the U.S. population will be above the age of 60.
President at Wealth and Income Group LLCChristopher P. Hill, RFC®, is the President of Wealth and Income Group LLC, with branch offices located in Tysons Corner, Chantilly, Roanoke, and Stephens City Virginia.Chris began his 25-year career in the financial services industry by spending his summers as a college intern for a major stockbrokerage firm.Immediately after graduating college with a B.S. in Finance, Chris spent over a decade working closely with the Senior Portfolio Manager of a leading money management firm.In 2001, Chris decided to form his own company and continue assisting individuals, families, and business owners with their financial and retirement planning matters, with a primary focus on wealth management.
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