Annuities: Friend of Foe? Four Cases Where They Work

Annuities: Friend of Foe? Four Cases Where They Work

Some people like annuities on sight, while others hold their noses at mere mention.

The problem comes when people lump all annuities – fixed and variable, immediate and deferred – into the same species, when they’re really different animals, fit to prosper in quite different habitats. 

We think it makes better sense to consider the matter on a case-by-case basis, to determine the annuity genus and species that best fits the particular client’s needs.

If a client wants an immediate income, an immediate annuity is the product of choice. The downside comes from their potential lack of a death benefit. It all comes down to how long the customer ends up living: too long and it could take them beyond the period where a refund is payable to heirs. This is a risk some clients are chary to take, but others worry little about the hazard their longevity might pose to other people’s pockets. 

What if the client wants to lock in future income? There’s a whole variety of ways annuities can work for them. If clients are youngish, they can start saving money now to be used later in life to buy a nice annuity. They can also get a longevity annuity now and then employ the “ladder” strategy familiar to CD and bond buyers. Finally, a deferred annuity can be purchased at any time, with the guaranteed withdrawal rider set in motion at some later date. 

Let’s say accumulating capital is the customer’s goal: here, fixed deferred annuities are appropriate tools. Variable annuities are generally unsuitable, but in some cases, variable deferred annuities can work if they include a guaranteed minimum withdrawal benefit rider, which would help guarantee safety of principal to the buyer. 

For more, please see:
Here Are 4 Planning Situations When Annuities Make Sense | ThinkAdvisor

Helping HNW Clients Decide to Self-Insure Against LT Care Costs – or Not Estate Planning and Divorce: The Smoothening Effect of Life Insurance