As much as I say that every situation is unique, the truth is most people fit in one of several categories of retirement preparedness. If you’ve ever spoken with me than you might remember me telling you a story of someone in a very similar situation. It is helpful to see that others have been in your position and have retired with a strategy that works.
Categories are general and specific. How and why to use annuities are specific categories that separate the majority of people into unique situations. Everyone also fits into a more general category that indicates whether they need an annuity or not.
Because most people are nervous around salesman I feel the need to make sure everyone understands that my goal is not always to sell annuities. My goal is to help you find answers, regardless of what that means for me.
So I’d like to explain the factors that surround the people who don’t need annuities. It may help you decide whether you need to be searching at all.
Last week I had the pleasure of speaking with a man named John, who had done well preparing for retirement. When I say he has a bunch of money it’s not so much that he is wealthy but it speaks more to the fact that his spending needs were but a small fraction of his total assets. That’s a far better measure of wealth than just adding another zero to the portfolio value.
John found my website because a local broker had pitched him an income annuity as a no-lose, obvious choice for a portion of his assets. He asked me to weigh-in on the matter and what I discovered is not much different than what I see with many proposals.
Annuities are meant to solve problems and John was pitched an annuity that would solve a problem he didn’t have. Therefore, I determined the recommendation to be irrelevant.
John is well-positioned and has his objectives clearly defined in relation to strategy. He made a calculated decision to exit the market and maintain a majority cash position until an excellent investment opportunity presents itself.
If he were to use an annuity it would be for reasons unrelated to the standard industry approach, which is guaranteed income to reduce market exposure. Instead you should consider a simpler approach. Safety and yield can provide enhancement or diversification for a conservative plan but there needs to be a deeper justification for buying an annuity.
Most of my clients are not too dissimilar from John. Many of them don’t need annuities either but using them is a strategic choice to add stability without sacrificing yield or flexibility.
Portfolio growth is more stable and sustainable when market-based investments are balanced with an annuity in place of other safe asset options. Income needs can be met in all market scenarios so fluctuations in the stock market don’t negatively affect lifestyle or endanger longevity.
I get the feeling that some people think an annuity is going to stick to them if they call to ask questions. I don’t like the average sales pitch either but in many cases an annuity is the preferred approach. Within all the proposals and available options you might see there is a right way to approach allocation in retirement. If an annuity is not the tool for the job then I’ll be the first to tell you so.
Talk to you next week…