I’ve seen dozens if not hundreds of people over-analyze product selection. If a strategy or idea is accepted, many people stall out when trying to decide which product is the best option. Since I favor the approach of asset protection and maximum growth it’s possible that I’m responsible for creating this roadblock for some because growth is a projection rather than the more objective task of simply finding the highest income payments.
Over the past week I’ve started conversations with a man who is in the midst of deciding whether to take his pension via lifetime income or a lump sum. Aside from the complexities of making that decision it’s interesting to see the route he has taken to get answers. He may not know it but the options he has seen underscore the difficulty some may have in finding the best solution.
First of all the pension is more or less secure but a little clause in the contract that many people disregard states that the company, at its sole discretion can reduce benefits in the future if the pension payments become unaffordable. So it’s up to the recipient to either accept that risk or avoid it by walking away with a lump sum in the beginning. It makes sense to want to have more control over the outcome but you have to at least be able to match the income.
His current investment manager, with no affinity for or experience with using annuities, recommended taking control of the lump sum and buying mostly fixed income with bonds and a small portion set in stocks to provide growth. It’s a typical recommendation but nothing in the investment game is really built to provide both safety and maximum income. Systematic withdrawals from a bond portfolio would fluctuate with interest rates and there’s little chance of matching the pension benefit, especially if withdrawals need to be reduced in order to protect the principal balance.
The next step was to call Fidelity Investments, the custodian of his investment accounts and inquire about any annuity options they can offer. This is where the problem starts. Fidelity is a major institution that has contracts to sell annuities for a select group of companies with the only options being single premium immediate annuities. Fidelity is in the business of aggregating investment assets so the company doesn’t have much motivation to send funds out to insurance products. So you’ll see a limited number of options that is likely to be appropriate in only a few specific circumstances.
I don’t know if this guy ended up at a dinner seminar or if he found it on his own, but he had also been exposed to my favorite product, the Allianz 222. There’s no doubt some moron out there that would try to sell him this contract but it’s an easy disqualification with the 10 year deferral since income needs to start soon. Regardless, many of you have been exposed to the flood of information that comes your way when you start typing things like ‘annuity’ in a search engine.
Most people you find will be like this man’s investment advisor or Fidelity Investments. There will be no knowledge of or even a hatred for annuities, or there will be options limited by contracts between institutions. It doesn’t just exist in the investment management area as insurance-based advisors are often limited by contract with insurance marketing organizations. I wrote about it last year and it’s a real issue that you’ll face. You can read the past article below…
The average advisor sticks to what he or she knows. A captive advisor doesn’t have much choice with available products. The hotshot in your hometown doesn’t need to branch out much because there’s less pressure and competition. I don’t have the luxury because I’m swimming in the biggest pool. I am forced to search all the options to stay competitive. If I can’t get what you need then I will send you elsewhere. There are people who read this every week that have had that experience with me so if that’s you then I’d appreciate a comment below so everyone else knows I’m not making it up.
When you find guys like me from an internet search, it can be hard to decide which the best route is. In many ways we all do the same things and have the same products at our disposal. It’s how we choose to use them that makes the difference. In addition, doing business always comes down to the three principles of know, like and trust.
It takes time for us to get to know one another. We have to get along if we’re going to work together and those who don’t like me are free to go elsewhere. Most importantly you have to believe I know what you’re up against and that in spite of the difficulty I can produce the best option and ideas for your situation.
Don’t forget that I’m here to help bring simplicity to this seemingly complex market. Take the time you need to make a decision but know that my message will stay consistent. If you’re going to use an annuity in retirement, make sure to use a product and strategy that gives you the most in return.
I want you to make money, have freedom and flexibility, stay in control of your assets and never have to worry about running out of money. Seems pretty simple to me…
Enjoy your weekend!