A lot of kids move back home after graduating college, as you may have experienced for yourself… more than once! Some of these parents make their child pay rent. Some parents put this money away and return it all to their child once he or she moves out, and other parents keep this money for themselves.
The reason I am telling you this is because, in some way, this is similar to the concept of “annuitizing.”
Annuitizing is when you choose to convert your assets in your annuity into fixed income payments that are guaranteed to last for your lifetime. One big reason people are hesitant to annuitize is because, if they die shortly after they turn on income, they are concerned they may give up a large portion of the annuity’s value. There is a way to avoid this, though. Keep reading.
Let’s think of these sets of parents as annuities. As you can see, the kid who gave money to the first set of parents didn’t lose control of their money. It is his or her choice when to move out, and when that happens, he or she will be able to pull that money out when he or she chooses to. The kid who gave money to the second set of parents, however, engaged in what we call “annuitization,” losing control of the principal and not being able to pull the money out.
I am not implying that annuitizing is strictly nothing but a bad thing, victor, because that is not always true. It is actually the traditional method that was primarily used. The main problem with it that has surfaced over the years, though, is that most people can’t see that far into the future, right? Well, you might have 30 years of retirement ahead of you, and you can’t necessarily predict exactly where you will be in 10 years or even further down the road from now.
That is exactly why people are afraid to make that type of commitment, because once you annuitize, you can’t ever pull your money back out. If you can’t predict where you will be in 10+ years from now, as most people can’t, the thought of losing control of their money might a scary one because they might need to pull that money out for whatever reason down the road.
Annuitizing might not be a bad idea if you are a little older and have a clearer idea of where your life will be in the next 10+ years. If you are younger, however, and can’t make that sort of prediction, it might be a good idea to have an exit strategy.
Well, you see, victor, if you don’t know where you will be in 10, 15, 20 years from now and you don’t feel comfortable with the idea of losing control of your money because you don’t know if you’ll need to pull it out in the future, there are options these days that provide an exit strategy with your annuity. Most of my clients like the freedom of knowing they have an exit strategy and knowing they have the option to pull their money out if necessary.
The Maybe’s, the What-if’s, and the Guarantees
Retirees and pre-retirees are usually seeking reliable income in retirement, as they should. There are a few vehicles people can consider:
- CD’s, but they are not yielding much and haven’t been for a while, which is why I like to call them “certificates of disappointment.
- The Stock Market, but that is clearly not the best income source because it is veryvolatile
- Bonds, but when interest rates go up, bond value goes down. Granted, interest rates have been down for a long time, but we all know they will go up sometime.
There are too many maybe’s and what if’s with a lot of these vehicles that people may think are a good place to generate lifetime income in retirement. The fact of the matter is, there are simply too many “but’s” and not enough guarantees. Retirees need a secure vehicle that offersguaranteed* income that is impossible to outlive. That is where the other option comes into play.
To get all of these things, you might think you would need a pension, right? Well, pensions aren’t really thick on the ground today like they once were. But, I’ve got something even better: an annuity that acts like a personal pension. Imagine if you could get a pension that is personalized just for you. The reason I am telling you this is because you don’t have to just imagine it… You can actually purchase an annuity that acts just like that!
With this personal pension product, you place money into a contract or a blend of contracts, and the insurance company and/or companies give a promise and have an obligation* to pay you for the rest of your life no matter what.
If you put your money into bonds or stocks (etc.), you run the risk of longevity (you or your spouse living too long). Obviously living long isn’t a risk in and of itself, but it may be too big a financial risk if you decide to depend on these “maybe” products for income in retirement. Living too long can present financial concerns because you might live longer than you budgeted for!
You might have only budgeted for your money to last you until a certain age because you figured you wouldn’t make it past that age. But, what if you do? What if that happens and the investment you’ve been pulling money from to pay your living expenses isn’t sufficient? You want to structure enough income to support your lifestyle no matter how long you live, right?
With a Fixed Index Annuity, the longer you live, the better. Why? Because, eventually your account value will get to zero, right? Well, when that happens, you will continue to receive that fixed income you’ve been receiving. The insurance company has contracted with you to provide that same monthly payment to you, and they will!
And, if you do pass away before your spouse, your spouse can continue to receive this income with spousal continuation benefits!
There are no “maybe’s” with that, because the contractual guarantees make it a guaranteed* DEFINITE. Bonds and stocks don’t have these contractual guarantees and they certainly don’t have a legally required reserve system in place like annuity companies.
These personal pensions,’ aka Fixed Index Annuities, allow you to spend with confidence becausethey are guaranteed* to give you income for life that you can’t outlive no matter what.
I have found that many people are skeptical about placing their money into an annuity and losing control of their money. Once you annuitize (turn income on), you don’t think you can ever pull the money back out; it becomes the financial institution’s money. world time . In that sense, this skepticism that people have makes sense, right?
Well, with a Fixed Index Annuity, victor, you can reap the benefits of annuitization while still having an exit strategy. You can get income for life—lifetime income withdrawals, which is the benefit of annuitization—but you still have an exit strategy. You can still pull your money out if you so choose to after turning income on.
A Hybrid Annuity allows you to live the best of both worlds:
- Monthly guaranteed* income for life: check
- Allow money to conservatively grow: check
- Receive an additional interest when a selected stock market index does well: check
- Never lose anything when the market performs poorly, but always participate indirectly in a market upswing and gain when the market performs well: check
- Choose the right blend of companies/contracts with the best contractual guarantees*that are backed by a legally required reserve system with the insurerguaranteeing* you and your money: check
- Utilize the spousal continuation benefit so your spouse can continue to receive income in the event that you pass away before your spouse