When it comes to retirement vehicles, annuities have a bit of a bad reputation. Many Americans see them as too expensive, too complex, and too many moving parts. There is certainly no shortage of articles or videos online advising people not to purchase one, but in times of market volatility, adding an annuity to your overall financial plan will eliminate risk of stock market corrections, provide upside growth - up to limiting factors, avoid long stock market recoveries to get back up to even, and provide lifetime income that you will never outlive.
In this episode of Money Script Monday, Michael reviews how annuities can be a useful financial vehicle that will withstand times of stock market volatility and provide guaranteed lifetime income.
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Hello, everyone. My name is Michael Clementi. And first of all, I want to thank you for attending this episode of Money Script Monday.
Our topic for today is five annuity myths debunked.
I'm very excited to share this with you because annuities have gotten a little bit of a bad reputation in the industry.
We've heard them be talked about as if they're too expensive, too high of cost, they're too complex, they're too many moving parts, I don't understand them, and my favorite, is every time I go online I see annuity articles and videos telling me not to purchase one.
What I'm here to tell you is that the best way to approach your retirement, outline your goals first and then start doing your research and due diligence.
So, just by opening this video, you're already taking a step in the right direction. And we're going to break it down to two different parts.
First, being the tool we're going to give you, which is going to qualify and see if an annuity would be right for your financial plan.
And then, we'll move forward to some of the most common myths and misconceptions about annuities.
By the end of today, you'll have a little bit more knowledge, a little more power moving forward with your financial plan. With that being said, let's get started.
We noticed in the industry annuities were being sold initially to people who may not have needed them. It wouldn't be the most benefit for their financial plan.
So, we found a tool that's going to help qualify you and see if an annuity would be worth moving forward. And that tool is the PILL method, P-I-L-L, PILL.
That's going to be a four-part acronym that shows the benefits and outlines what an annuity can do for your retirement plan.
1. Principle Protection
First one, P, means principal protection. Every time you use an annuity, you're always going to have your principal protected by negative downturns in the market.
So, any negative 5, 10, 15 years in the market, zero will always be your hero really taking risk off the table while you're approaching retirement.
2. Income for Life
Second, I, that's income for life.
A majority of our annuity products are embedded with what's called income riders and that's going to give you an income stream that you'll never be able to outlive, which is contractually guaranteed by the insurance carrier.
So, again, when you're approaching retirement, this is a great way to create an income stream that you'll never ever have to worry about.
L, first L, legacy. This is still an insurance product, so you have to keep in mind your family, the protection aspect of it.
The majority of our annuities are structured to leave a death benefit to your family, which you'd either leave a lump sum or annuitized over the next five years.
4. Long Term Care
The last L is long term care. 80% of us are going to suffer some sort of long term care needs.
If it's in-house facility, medicine, nursing homes, and majority of our annuities are going to actually double that income stream if you were to suffer any of the long term care needs.
So, again, I really want to stress this home. If you're ever looking for an annuity, stop, take a deep breath and remember PILL.
Myths vs. Facts
Now that we have that tool all lined up, let's start talking about some of those annuity myths we were referring to earlier.
First one being annuities are only for retirees.
What we noticed is annuities were being sold to a majority of people already 65 and above in the retirement phase, but they were overlooking the pre-retiree demographic more of the saver mentality people.
And annuities are great for accumulation. So, if you're 10, 15 years out of retirement, think about using an annuity to accumulate.
Remember the principal protection using that positive index returns to the market so that when you hit retirement, you have a lump sum to either annuitize, you can use it for leveraging other money.
It's still a great product and tool for the pre-retiree demographic.
Second, annuities cost too much. And this directly relates to the income rider.
We've seen income riders range between 0%, 0.5% all the way up to 2%. But remember what you're paying for in retirement.
You outlined your goals, you want the income for life and the principal protection. So, is that 1% to 2% cost worth the other investments you are looking at, just remember to outline your goals first.
Three, no point in buying an annuity for income before retirement. Again, this is relating to the pre-retiree demographic.
One thing about annuities is the guarantees, the bonuses, the roll-ups, all the things that are going to grow your money, no questions asked.
That's going to give you a bigger pot you can either withdraw from or create that income for lifestream.
So again, you can create an income annuity in the pre-retirement phase.
Fourth, can't create a lifetime income from my retirement accounts. So, why would I use an annuity when I already have my 401(k)s, my IRAs, everything I built up before.
One thing that we relate that directly to is risk.
Whenever you're in the retirement phase and you're withdrawing from these accounts, you're withdrawing from that principal and lowering the principal nest egg almost giving yourself a deadline for when that money is going to run out.
Again, one thing we stress is the income for life guarantee.
So, no matter what happens in the annuity, you have that income stream on a monthly or annual basis covering your essential discretionary needs.
You may want to consider using some of those qualified accounts and pushing them over to an annuity.
And lastly, the insurance company keeps the money when you die. Again, this relates to the legacy and long-term care.
We can now structure annuities to leave money to your family, to your loved ones after you pass away in either a lump sum cash value or annuitized over five years.
Remember, the insurance product protection is always key when we're moving forward. So, that really wraps up for the day.
Again, we went over some of the myths and misconceptions about annuities and also the PILL method.
So, I want you to remember that, if you're considering an annuity, remember the PILL method.
Remember what we talked about and consult with a financial professional to see if an annuity would be right for you.
Again, I want to thank you for today. My name is Michael Clementi, and we'll see you next time.