Annuities Create Bigger Portfolios
Perhaps one of my biggest sources of pride after 22 years in this business is the fact that I know I have some of the smartest consumers as clients. None of them rushed to make long-term commitments for retirement and I’ve worked really hard to help everyone answer all possible objections. The result has been solid relationships and even several close friendships. It’s a blessing that I don’t take for granted and I will continue to alter my analysis and strategies to suit all economic changes that have yet to come.
There are plenty of ways to convey an idea using retirement strategies and it’s fine if the same idea isn’t explained in a way that doesn’t seem relevant to you. When I say that annuities create bigger portfolios, it’s not the first time I’ve shown these examples. Also, there are a lot of episodes now so don’t worry if you don’t have the time to watch them all. Today we’ll look from a different angle at something I’ve been talking about since this website got started.
Just over a year ago Episode 126 was released, “The Fundamental Purpose of Annuities.” That was a remake of one of the very first newsletters from nearly ten years ago. This essentially describes the benefits of using annuities in a retirement plan and the advantages it would provide over traditional portfolio management for income planning. These are not new ideas and have been academically studied and verified for decades.
Two years ago I talked about it again in terms of legacy for someone who was most concerned about leaving money to their kids. Episode 86: “Annuities Create a Legacy” directly addressed this while I proposed an income plan that would offer more security in retirement. Depleting the total value of the portfolio over time because of the annuity purchase was what made this couple the most hesitant. There are other ways to leave a legacy that I covered in the podcast but the point of the whole example was to show how the annuity would help them grow assets.
In either of the previous podcasts the whole point was to show that an annuity done the right way improves a portfolio. Maybe I need to be more direct and just say that you’re going to have more money because of it. What you decide to do with it is up to you. Inflation adjustments, spending increases, or even a legacy come to mind for most but the importance is going to be different for everyone. All of my intelligent clients have figured this out and that’s why many own an annuity even if they don’t need one.
So far this year the stock market is well off of its all-time highs. Nevermind that there’s only a few months throughout history where it was higher than it is today, people still hesitate to make a commitment at a time that doesn’t seem optimal. I can show you the analysis and tell you that it really makes no difference because time is a more important variable than yield. There have been times in the past when it took several years for markets to recover. I really don’t think that will be the case this time but who knows what the future holds. There’s no guarantee unless you use an annuity.
Traditional investment management suggests using bonds or other fixed instruments to create income in retirement. Income annuities offer payouts at least 50% higher than high-quality bonds and sometimes a lot more. That means it takes less money in an annuity than bonds to create the retirement income needed. This leaves more money available for long-term growth or even enables reinvestment of dividends where a traditional portfolio might use that for income. Both of these situations will create a bigger portfolio. Oh yeah, and it’s going to make life a lot easier as well.
Avoiding a long-term commitment is another reason people stay away from annuities. Well, bonds can be very long-term as well and I know several people with bond ladders that have full maturity dates more than 15 years in the future. No matter what I’m not telling anyone to blindly go buy an annuity. You should verify it from every possible angle and a substantial majority of people who engage me with the question see better results with an annuity. Try it for yourself and if I’m wrong, at least you know for sure rather than relying on the preconceived bias of another advisor.
In the past six months I’ve heard from consumers and investment managers that seem to think the most money can be made with exposure to the stock market. In retirement you will never achieve maximum performance without a little more stability, because as each year passes you have less time to recover from intermediate market shocks. If someone says you don’t need an annuity then you especially need to explore the topic for yourself. Smart people who have become successful enough to retire comfortably don’t all of a sudden start making mistakes with money.
Retiring comfortably doesn’t always mean that you have a ton of money, it just means that you have enough to maintain your lifestyle and not worry about financial matters. If you are in this category then you are above average. Financial media, aside from special interests, serves the average person. If you’re not an average person then why would you accept average advice? Above average people should be looking for optimal solutions and that’s what I deliver. If it’s not in your best interest I’ll be the first to say so.
Have a great weekend!
Bryan
Watch Episode 179: Annuities Create Bigger Portfolios
Last Updated on May 23, 2025 by Bryan Anderson
