The Only 8 Reasons To Consider a Fixed Indexed Annuity


Maybe you’re considering purchasing an annuity. This may be a good decision or a bad decision but there’s really only 8 reasons why you you might consider a fixed indexed annuity. If you don’t feel like one of these reasons applies to you, than it’s probably a good indication that you don’t need one no matter who’s trying to sell it to you. So let’s get started and look at the 8 reasons why you’d ever want to purchase one.

1. You want guaranteed income

Guaranteed income provides you with a peace of mind whose value is far greater than that of the actual dollars you receive. Have you ever heard someone say…

“I would gladly go back to the old days of guaranteed pensions when I didn’t have to worry about outliving my savings and running out of money.”

Social Security was never meant to be a complete retirement solution that covered all of your basic living expenses. Pensions filled that income gap. Since we now live in different times in fewer and fewer people have pensions, we must evolve and adapt to our new reality.

If you’re like most people, Social Security &/or pensions only covers a portion of your basic living expenses. This income gap means that you have to rely on your savings to not only generate the income you need to fill that gap and to enjoy the lifestyle you truly want.

This is usually the number one reason so many people fear outliving their savings.


lifetime incomeIf this is the case, it’s important to make sure that you have secured additional guaranteed income streams so no matter what happens in the market, your basic standard of living will not be affected.

Today, Fixed Indexed Annuities that provide a guaranteed income can provide the peace of mind that so many people want and in this respect, they have become the self-maintained pensions of the 21st century.

And with today’s annuities, you don’t have to worry about your family not getting your money should you die prematurely. Properly structured, your loved ones will not only get the cash value of your annuity but they will also avoid the often expensive probate process.

If you are fortunate enough and the guaranteed income you get from your Social Security payments &/or pensions do indeed cover your basic living expenses, there still are many other reasons why you might want and benefit from adding a fixed indexed annuity to your retirement portfolio.

2. You prioritize living life over micro-managing your finances

Retirement_Begin_Working_at_Living_postYou may have the skill-set to effectively manage your retirement finances, but are you doing so at the expense of truly enjoying your retirement and spending your time with the people that matter most? Putting your money’s growth & income on autopilot in a fixed indexed annuity designed for growth might very well give you the income you need and the preservation of principal you want so you can step away from the computer screen and start living life as if each day was your last.

Ask your spouse and you’ll likely be surprised to find out that his or her bags are already packed and they’re just waiting for you to get on board.

3. You prefer moderate gains, safety & predictability rather than swinging for the fences

Since Fixed Indexed Annuities are not exposed to market risk because your money is never invested in the market, if you want to eliminate market risk from a portion of your portfolio, a fixed indexed annuity may be a good option for you.

Swing for the fences copyNow since there’s no market risk, don’t expect double digit returns either. Obviously, the less risk you take, the less return you can expect. Too many agents over-promise what to expect and promise great growth and great returns just to get the sale but that’s not what these products were designed to do. They are designed to protect your money and provide conservative growth.

Even though they were originally designed to do that, a study by Prof. David F. Babel of the Wharton Institute of finance (David Babbel Wharton Professor – Interview Part 1) (David Babbel Wharton Professor – Interview Part 2) shows that they are actually very competitive with equity and bond mix portfolios.

This is due to the fact that it takes more money to make up for losses, so when you don’t lose any money when the market goes down as is the case with Fixed Indexed Annuities, you don’t need as big of gains to make up your losses and have steady gains.

A fixed indexed annuity will generate anywhere from 2.5% to 7% growth.

4. You’re concerned about the cost of long term care

A lot of people can’t afford or don’t want to pay for traditional long-term care insurance because if they never use that insurance, they’ve lost all that money.

Long Term Care AnnuitiesSome annuities have long term care provisions in place and give you an increase in your payout by  150% to 300% if you need long term care

And if you never need to use them, then the value of your annuity will pass on to your beneficiaries. Ask your bank if they can do that with the money you have sitting there.

5. You can’t qualify for life insurance & you want to protect your family

protect-your-family1Annuities, like life insurance, are not subject to probate and will go directly to your named beneficiaries. Now it’s true that life insurance is still the best way to transfer your wealth to the next generation but if you can’t qualify for life insurance, annuities are another option. Some annuities have a death benefit (usually not tax free like life insurance) for your beneficiaries that increases each year. Another type of annuity allows you to withdraw 4% per year and even if there is only $1 left in the policy when you die, the full amount of the initial premium will pass on to your beneficiaries.

6. You spend too much

If you have trouble controlling your spending or simply just don’t know how to manage money, an income annuity can be the perfect way to help you set up a sustainable income for the rest of your life.

This works in two instances:

Save MoneyThe first is if you annuitize (exchange your principal for income) and select a predetermined payout schedule. The fact is, most annuities are never annuitized because people want to retain control of their money… But, if you were to do so with a portion of your money, annuitizing would force control your spending.

The second is if you exercise your income rider (if selected at the beginning contract term); but even with an income rider that pays out a predetermined amount of income, you can always withdraw additional funds.

7. You don’t spend enough

Now this is surely counter intuitive to most of you reading this, but hear me out. I have met with many clients over the years that spent less than they could and didn’t do some of the things they would have liked to (like go on more vacations) simply because they were worried about outliving their savings…

spend more moneyAnd they were worried about outliving their savings because they didn’t have a retirement income plan in place that made sure that their basic living expenses would be covered, no matter what happened to the economy or the markets, for as long as they lived.

By helping them develop a retirement income plan and incorporating three annuities with guaranteed lifetime income riders that would begin to pay out at different dates in the future, they quickly realized that they had more than enough and could predictably plan purchases and trips well into the future.

8. You want additional tax deferral

One instance when you might want additional tax deferral is if you’ve maxed out the contributions in your IRA or 401(k). If this is the case, then an annuity is another way to get additional tax deferral. A big difference is that money you put money in an annuity held outside of an IRA is in after-tax dollars, so you will not get a deduction in the year you contribute. However, the earnings will grow tax-deferred and as long as the earnings are inside of an annuity, they are not taxed until you make withdrawals.

Another instance when you might want additional tax deferral is if you have money in CD’s earmarked for long term needs or to pass on to your beneficiaries because interest payments on CD’s are taxable.

That’s it!

Those are the 8 reasons why you would ever consider adding a fixed annuity to your retirement portfolio. If you don’t have any of these reasons, then there’s probably a good chance that you don’t need a fixed indexed annuity regardless of who is trying to sell you one.

“I’ve found that most people come to me either because they feel that they either have to much money at risk in the market or they want to secure a lifetime income.”

If you want protected growth: Look for annuities with uncapped strategies that will give you the maximum potential for growth.

If you want lifetime income: Look for annuities that will pay out the highest contractually guaranteed income.

One last thing to consider:

By covering at least basic expenses with lifetime income annuities, you can use the rest of your savings however you want, whether that is investing in more risk based assets with more growth potential.

Guaranteed lifetime incomeGuaranteeing your basic expenses with lifetime income annuities means that your other funds can remain invested in the market for a longer period of time, allowing you to potentially capture higher market returns and maximizing the useful life of those funds even further or taking those once in a lifetime trips you’ve been putting off.

Our simple yet effective approach to retirement income planning can help you make the best decision when it comes to purchasing the right annuity.

If you would like to have an annuity you own or one you are thinking of purchasing run through our review process, then simply book a time for us to talk on my online calendar. There, you can find a time that’s convenient for you and claim that spot.

Free of charge… No strings attached

We’ll get started to make sure that the annuity you have or the one you are thinking about purchasing is the right annuity for you.