Many times, annuities are abused and taken advantage of by insurance companies and financial advisors. Jeremy and Jake break down how annuities work, and what they should look like in a portfolio. Then they go on to explain the best use of them. Here are some of the reasons why you would consider them:
- Income – you can find the gap in your necessary expenses and your pension and social security and buy an annuity to cover the difference
- Safety – Fixed annuities give you a fixed rate of return for a certain time period, usually 5-10 years. If you are loss averse, this can be a great option for you!
- Bond Replacements – Long term bonds are priced the same as short term bonds – This is a present-day market phenomenon that makes income and fixed indexed annuities more attractive.
- Part of a portfolio – An annuity should never be your entire portfolio. If someone is trying to sell you an annuity for all your money, RUN!
Having a realistic expectation for your annuity, just like your investment portfolio will help you appreciate the benefits of it. Here are some of the things you can expect from them.
- A lower interest rate than the market
- A monthly payment
- A surrender schedule – There is a penalty if you take it out early.
- Reduced Liquidity or no liquidity – Income annuities will not allow you to take out your lump sum if you have started taking payments.
- Your advisor is compensated from annuities by the insurance company. There will be a commission paid.
- Annuities are regulated by the insurance industry, not investment regulators.
If you feel like you would benefit from talking with us about your existing annuity, or you think you would like to explore them for your own portfolio, chat with us today!