How to Beat the Market with An Annuity

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Yes, it is possible but you have to think about it differently than most everyone else.  The annuity itself may or may not beat the market but how you use it can definitely give you an advantage.  Too many people get stuck on evaluating a single assets rather than finding ways to build a portfolio of assets that work together.

It might help for some to have a little context.  I’ve been hinting at this for over a year and have shared the idea with several people.  Two of the past newsletters will give you some background and show you how long I’ve been working on this.  First, you can click here to read “How to Get Out of An Annuity”.  It talks about the myth of liquidity and how annual free withdrawals give you plenty of opportunity.  Second is the “S&P 500 over 25 Years” that shows you a chart and gives you an idea of the real yield you should expect with risky assets.

Then it comes to this, my latest idea.  I’ve been playing around with it for more than a year and have since found out that this approach has been academically verified to maximize assets in retirement.  I have compared more than 50 time periods and all have similar results.  So the numbers aren’t cherry picked and if you want to pick your favorite mutual fund or ETF I can pull the chart and make a quick spreadsheet to test it out.

This is just another thing you can do with an annuity that wouldn’t be possible with other assets.  Liquidity free of interest rate risk with a reasonable yield is what gives the annuity an advantage over bonds and cash.  So enjoy the video and let me know your thoughts.  You can comment below or respond to my email.  I’m going fishing today so forgive me if my response time is a little slow.

Have a nice weekend…

bryan

4 replies
  1. TJ
    TJ says:

    The video seems a little confusing.

    You are adding a a 3% or 4% yield in addition to the market growth. The market growth that you had defined as a S&P 500 Index fund with dividends reinvested.

    What annuity product is going to offer a 3%-4% yield in addition to a 100% participation rate option contract that is S&P 500 with dividends reinvested?

    Reply
    • Bryan Anderson
      Bryan Anderson says:

      TJ- I think you missed the point. Many have hard time thinking of assets that can be used to work with one another so thank you for letting me provide more detail. It’s not an annuity that yields 3% to 4% plus the S&P 500 with dividends over 20 years. It’s an annuity that grows at 3% or 4% that is drained so that money can be invested in the market incrementally over the 20 year period, thus reducing risk substantially.

      It’s merely an illustration of the fact that dollar-cost-averaging is what contributed to the portfolios of today, rather than the market doing all the work. Going forward it will be the same thing so those who truly want to profit need to adopt a different strategy.

      If this doesn’t clear things up please let me know.

      Reply
      • TJ
        TJ says:

        Hmm. It seems like in that case you are not really avoiding the sequence of returns risk inherent in the stock market, you’re just shifting it to a later year for a period of time. As each year goes by, more of your investment is subject to stock market risk and the annuity is depleted.

        And you can’t really utilize this strategy until after age 59.5 because of the 10% early withdrawal penalty.

        Reply
        • Bryan Anderson
          Bryan Anderson says:

          TJ- you are avoiding sequence of return risk in the first ten years when it matters most in retirement. If someone wanted to avoid the risk associated with more money growing then they could start the whole thing over when the annuity is surrender free in 5 or 10 years. S&P 500 showed $320K after 20 years. Annuity with incremental investment after 20 years had $280K in the market account and $70K in the annuity. One clearly has less risk and is less affected by sequence of returns. The whole point is to get back to the point where dollar cost averaging is an advantage.

          And by the way, you can do this before 59.5. This would be done as a transfer to another account, not a distribution.

          Reply

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