The Annuity Advantage
Annuities wouldn’t exist if they didn’t provide a strategic advantage at times. One of the most frequent comments I receive during a first meeting quotes something like this: “I never really liked annuities but someone tried to sell me one so I started doing research.” Most have gotten a different perspective here without pressure and are inclined to get a second opinion. Last week someone questioned how I know what the majority of advisors are doing. If my experience meeting with thousands of people across the country doesn’t convince you then go ahead and meet with a dozen other salespeople. You’ll find out pretty quickly that many take the same approach.
In most cases you’ll get something different here because I’m just trying to educate people. Those who do business with me will find an advantage for themselves in doing so and those who don’t will have every reason to keep things the same or choose a different path. I just had a call with a guy who has a solid plan and should probably keep things as they are given his active involvement in his plan and future goals. Someone else pitched him an annuity but he didn’t bite. I determined an annuity would give him an advantage that he doesn’t align with his current strategy. I support him in sticking with what he has going and down the road what I offer may become more appealing to him.
It is widely accepted that safe assets should be a larger part of one’s portfolio just before and during retirement. But there are several ways to protect assets and annuities are just one of the options. An annuity could be the perfect strategy for you but only if it’s a better option than something else. I often get pretty technical in these podcasts so it helps to bring things back to simplicity so we can all remember the basics. It’s a good time to show you all the safe money options you have in retirement so you can see where annuities hold the advantage.
The list is not as long as people think. We’ll start with the most liquid and lowest yield and move toward the least liquid and highest yield.
Cash Accounts or Money Market
Money in the bank is nice and everyone should have some in there. It only takes a trip to town to get some out. It’s fully liquid for emergencies or alternative investments and you can get a decent interest rate right now. But the rate is not guaranteed tomorrow so if you want guaranteed interest to last then a fixed annuity will ensure your rate doesn’t drop for a longer period of time. An annuity is no place for emergency funds but for those who have a significant amount of money just sitting in the bank, a fixed or indexed annuity will give you a longer term guarantee.
Certificates of Deposit
This is easy for a lot of people to walk into a local bank and tie the money up for a guaranteed interest rate that lasts a bit longer. Savvy people that don’t mind doing business online can also find some of the most competitive rates with a national bank. CDs are good spots for parking money but aside from the interest rates, they don’t do anything else strategically for retirement. There’s no liquidity during the term and you can’t extend the term past about five years. If you want to be able to pull some money out every year or even set up systematic withdrawals, consider the annuity that also gives you the advantage of a longer term interest guarantee. It’s as simple as that.
Bonds and US Treasuries
These aren’t really one in the same but we’re out of the banks now and the two are often combined in traditional portfolio management. Treasuries often hold the shorter term safe assets with bond ladders being used for longer term security. It works for consistent cash flow to provide retirement income or reinvest in other parts of the plan. Liquidity is the first issue here because it’s limited to the interest payments. Anything in addition means liquidating parts of the portfolio and that could be good or bad depending on changes to interest rates since you purchased it. Fixed or indexed annuities will have similar to better yields and 10% can be taken annually without interest rate risk. Also, while treasuries are backed by the federal government, bonds are not perfectly safe. You have to build a bond ladder with a significant number of individual holdings which can be pain to manage. You can comfortably put a large amount of money into an annuity with a strong insurance company for more simplicity. There are just a couple of the reasons why annuities have the advantage.
In relation to all of these options, I left a few big things out. Annuities offer tax deferral for non-qualified money so you can have more control over taxes in retirement. This doesn’t matter if you only have Traditional IRA or Roth money but for many it makes a difference. And the big one is guaranteed income. If you are trying to produce cash flow from the safe portion of your portfolio this goes without saying. Annuities offer the best bang for your buck, meaning it takes less money to produce the same level of income. Anyone who is looking to maximize assets in retirement will find an unmatched advantage using annuities to do it.
Once again, I’d like to remind everyone that there are options but it’s really not as complex as many people think. I meet with people every day who choose one or more of the above instead of annuities and that’s just fine. There is a significant advantage in every area but it still has to line up with your goals. When you are ready to make it as easy as possible, don’t overlook annuities as the way to get the most advantage. Hit the top right corner of the page to book an appointment.
Have a great weekend…
Bryan
Watch Podcast Episode 187: The Annuity Advantage
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Last Updated on July 30, 2025 by Bryan Anderson
