The simple fact is this: Annuities guarantee their promises. How many products that you use in your daily life can make that guarantee? Think about the benefits it will provide, the guarantees it will guarantee and its effect on so many lives.
The human body is a strange thing, and it can provide almost any success it desires, to accomplish nearly everything it thinks is important. A person’s ability to perform at a high rate of accomplishment sets aside flaws, fears, and concerns over what others may feel. Humans can do things out of the ordinary, things that others might never even consider. Commitment, fearlessness, desire to help a fellow man, the desire to stand up and be counted, the desire to give. Human beings like you, me and your neighbor next door, almost all people on earth strive for four things necessary for a happy retirement time period, a happy home.
How does working with our clients and prospects compare with these accepted goals? Here is a secret: Retirement is not about how much money you have; rather, it is about how much income you have. Income that cannot be outlived and comes regularly reduces stress.
An annuity can guarantee lifestyle.
What about longevity? I used to explain longevity with this term, “the longer you live, the longer you will live” The meaning behind that term isn’t meant to be silly; it is to establish a foundation; the longer you live, the longer you live. It means that the longer you live, the greater your life expectancy because at an older age, your longevity increases. Here is an example; a boy age 10 has a life expectancy to age 76. But when he reaches 76, does he die? At 76, all males in that group have a life expectancy of another 10.5 years. The longer you live….
As an infant, we are born with only two fears — the fear of loud noise and the fear of falling — but life gets in the way, and with that comes more and more fears.
The three greatest concerns of people as they age are:
- Being alone and forgotten, no one to talk to
- No longer feeling relevant; no one cares what you think
- Running out of money, having your money die before you do
None of us know how long we will live, but we do know a few facts about living longer: Do not smoke, do all things in moderation, exercise, eat well and the big one: Avoid stress! The American Medical Association states that stress is the number-one overall cause of a lower quality of life leading to a shortened life expectancy. What is the number-one cause of stress for humans? Fear of illness, worry about kids? No, it is fear of running out of money!
Annuities can guarantee that a person will never run out of money! Annuities provide longevity!
Liquidity? Do annuities provide that also? In a way, yes, but they also do not offer any capital gains tax benefits; all income from any gain in an annuity is taxable as ordinary income. There are numerous ways to reduce the tax hardship by removing funds over a period of time. Still, the answer is no; I would never consider an annuity an economical source of liquidity. Banks and bank products would work — any asset that qualifies for capital gains and has a withdrawal feature (mutual funds, selling stocks, etc.). What else is a lousy source for liquidity? IRAs and 401(k) plans. When you gain access these assets for liquidity, you get the full brunt of taxation.
How about a legacy for your heirs? Real estate, stocks, mutual funds, anything that qualifies for step-up in basis makes for a legacy consideration. The best one? I think life insurance is the ultimate legacy funder; the proceeds are tax-free, always paid in cash and almost always paid immediately. Annuities come with tax liability to the heirs.
Then there is the mortality table secret. Remember the longer you live scenario? Each year built into the mortality table is a built-in payout factor of 3%. If you are (insert age) and with your deposit, you could receive $1,000 a month, wait one year and the same amount of money will pay you $1,030 a month. That is the secret of the mortality table: The longer you live, the longer you will live.
In summary, look at how powerful these products are: They reduce stress, remove uncertainty and help increase life expectancy.
Dustin Settle, director of P.A.McGavick & Associates LLC in Boise, helps people navigate the retirement planning process. He is a member of Syndicated Columnists, a national organization committed to a transparent approach to money management.