The point of this whole operation is not just to sell as many annuities as possible. A lot of time and effort goes into making sure people don’t make mistakes and that results in me not selling annuities most of the time. Some people get it and some people don’t. Annuities work for some but not others. Some sales are easy and some take a lot of time and effort.
Last week I thought I had a really easy sale coming my way. My dad needed help setting up a living trust so he could organize his assets. I have five siblings and this will make things a lot easier than just hoping we all agree on something. Many of you have had good or bad experiences with the issue so it’s something I recommend to all clients.
Part of what he needed was an investment idea for a fair bit of cash he has set aside over the years. He has little experience with the stock market and is one of those people who really doesn’t spend any time thinking about how much money he can make. Simple and conservative is his wheelhouse and there aren’t a whole lot of options.
Kim Anderson spent a 42 year career as a school administrator in Montana and Wyoming. Two modest pensions and social security allow him to easily cover expenses with plenty of extra cash each month for discretionary spending. He also has supplementary health and long-term care insurance so is well prepared for the big emergencies in retirement.
With plenty of savings and positive cash flow he is in a perfect spot to do about anything he wants. He should invest some money and get more growth, right? Yes he should and based on his limited experience a simple fixed contract would be a good way to increase yield. Dad knows I’m in this business of course so he directly asked me to find a place where he could put a couple hundred thousand dollars.
Well he’s my dad and I really like the guy and would never steer him wrong. I know this market and how to find a nice easy deal that yields well with no complication. But I’d never take him for granted and just assume he’ll cut a check and send it wherever I tell him. So I made him go through the same process as anyone else to find the need or justification for giving him a retirement product. That’s how we settled on creating the trust before anything else happened.
During our conversation we talked about how he is planning to spend his time in retirement. Currently he is getting ready to move back to our small family farm in the Bitterroot Valley so he can raise a few cattle and plant a big garden. My grandmother, his mom is alive and well at age 89. She lives alone on the property and needs some help. Since my dad built the house back in the 70s there is a family connection he wants to keep in place.
Grandma needs help to keep the place in good order and it will provide him the opportunity to putter around on a little farm and do what he loves most. But Kim has siblings too and they have an equal right to the property where Grandma lives, and she won’t be around forever. Kim’s plan is to buy his siblings’ share of the property but won’t do anything until Grandma is gone. Otherwise she’ll think they are trying to push her out.
So with a big need for cash coming at an undetermined time in the future he needs to be fully liquid. He can’t risk losing anything in the market for the time being and no safe asset will give him the flexibility to make the purchase when it happens. Real estate considerations play a big part in many retirement plans. Some people upgrade or add a second home and some people downsize to cut cost and free up extra cash.
My advice is the same for everyone. Money needed for major purchases within a few years should be kept safe. There’s not enough time for real growth no matter what yield you get so it doesn’t make sense to risk not having funding available exactly when you need it.
For now, Kim needs to focus on his tasks around the farm. When the snow melts he’ll go to the stock sale, buy some steers to finish and plant some raspberry bushes. He will continue saving money and eventually buy the old house. When that happens he will then be in a place where he can look at investing some assets for long-term growth.
Part of him thought that I didn’t want to deal with him because he doesn’t have that much money but that’s a long ways from the truth. He understands it differently now that I explained why liquidity is the biggest issue for him. I also told him that normally I spend my time solving problems that he doesn’t have.
He has adequate savings and monthly income plus insurance to cover contingencies. He is simple and would rather trust me than spend a lot of time researching products and financial strategies. For that reason I chose not to sell him an annuity. He wanted me to make the decision so I considered all factors and determined it’s not what’s best for him right now.
I only sell annuities that solve problems and improve financial security and opportunity. Whether it’s my dad or anyone else, I won’t recommend any strategy unless it’s the right thing to do.
Enjoy your weekend…