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Tags: annuity | annuitites | portfolio | stocks

Strike a Balance With Annuities

Joe Stark By Thursday, 18 September 2014 09:45 AM EDT Current | Bio | Archive

You have probably heard a lot about annuities, both the good and the bad.

So I'd like to take this moment to peel the onion on annuities, so to speak. Let’s look at the myths and the facts, how they really work, and their risks and rewards.

First, all annuities are not the same. An annuity is simply an insurance contract in which you pay funds to an institution (typically an insurance company) upfront, and in return, it doles out a stream of payments over time.

Usually, an annuity is designed to provide a steady and reliable cash flow that you can count on.

While in some quarters annuities have gotten a bad rap, they have provided many Americans with a financial alternative to the high risk of the stock market and the minuscule returns of bank CDs and bonds.

Editor's Note: Get a 30% Increase in Retirement Income

For example, in a hypothetical situation where you invested in the stock market in March 2000, and reaped average returns, 13 years later, your investment likely returned something near a paltry 2.1 percent over that period, and that entire gain would have come from dividends.

With prices unchanged over that time, you would have made almost nothing after 13 years!

Now, suppose you had invested in government and corporate bonds. They pay out anywhere from a half percent to 3 percent — if you lock up your principal.

But your returns could be depleted by taxes and inflation. Based on the highest individual tax brackets during that time, Uncle Sam could have taken as much as 44 percent of the income return in taxes.

So your total return on a “high yielding” 3 percent bond could have been hypothetically as little as 1.68 percent.

Next, inflation further erodes your returns. With inflation at a moderate 3 percent, your 1.68 percent positive return could hypothetically become a negative 1.32 percent return!

Likewise, with inflation considered, dividends from that 13-year stock market investment would have had an after-tax, after-inflation return of negative 1.82 percent.

As you read this article, interest rates are low and the stock market is hitting record highs. But tomorrow, rates could go up (quickly depreciating the value of your bonds) and the stock market could go down — yet despite such uncertainty, annuities could provide reliable financial performance.

Those wary of the markets have increasingly invested part of their nest eggs into annuities. Since 2004, more than $2.1 trillion has flowed into annuities of all types (traditional fixed, indexed, immediate, and variable). In 2012, indexed annuity sales set a record of $33.9 billion, according to LIMRA.

So why the negative publicity about annuities?

First, it’s important to consider the source of any negative publicity. Those in the stock market industry, made up of financial institutions, brokers, and investment advisers, want you to keep your money in the stock market because they earn money from your stock market investments.

While they may use ads focusing on the commissions for annuities, they don't tell you the very significant fees money managers and mutual funds appropriate from you every single year you're invested with them.

Next, it’s important to look at the details of the annuity products considered. For example, some critics cite the “sucker factor,” claiming that if you put money into an annuity and then die shortly thereafter, you will lose your payouts.

However, it is important to remember that annuity owners have control of product features and riders and can structure the payouts in a way that allows them to pass on the unpaid benefit to their heirs.

And those who don’t make these provisions are compensated by receiving larger payments. In some ways, it's this sucker factor that makes annuities attractive. Because insurers know some people die early, they can afford to pay you more per month than you could prudently draw out of personal investments.

Again, it’s important to remember that there are several types of annuity products. Certain types of annuities are risky, promising higher possible returns that may not be realized. And still others are weighed down with complex contracts, and hefty fees.

So with so much uneasiness surrounding annuities, should you consider one for your retirement portfolio?

The short answer is yes. By doing your due diligence and asking good questions, you can find annuities tailor-made for your situation that can deliver the income you need, when you need it most.

Annuities have a proven track record and have been around for a long time. They come in a variety of flavors and offer a lot of versatility, so it is possible to find a sound option that’s suitable for you.

My firm, Crown Atlantic, focuses on simple, easy-to-understand annuity offerings, but if a consumer is unable to understand an annuity, he or she should not purchase it.
I have been offering annuities for more than 20 years, and have worked with several of the top Fortune 500 insurance companies, completing more than $500 million worth of annuity transactions.

Editor's Note: Get a 30% Increase in Retirement Income

At Crown Atlantic, we focus on annuities that are valuable for those who want to ensure a steady income stream during retirement. We try to avoid downside market risks and focus on securing a retirement income stream that can’t be outlived.

You can find out more about safe, guaranteed income that can increase you retirement payouts by 30 percent in Crown Atlantic's new report "The Annuity Primer: Get Guaranteed Income for Life." Go online to CrownAtlantic.com/Protect or call today 855-221-5546.

Joe Stark is the CEO of Crown Atlantic Insurance, LLC in Boca Raton, Fla.  Stark is an insurance industry veteran with more than 25 years of experience. For more of his reports, Go Here Now.

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So with so much uneasiness surrounding annuities, should you consider one for your retirement portfolio? The short answer is yes.
annuity, annuitites, portfolio, stocks
Thursday, 18 September 2014 09:45 AM
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