What Fixed Annuity Alternatives Exist?

Life is full of choices and nowhere are there more voices competing for your attention than in the world of investing. There are many solid great investments available. Conversely, there are also very bad investments in every financial category that exists. Investments and strategies are similar to ingredients in the kitchen. For the most part, it is not the ingredients that can be blamed for the terrible meal. It is the cook! Similarly when financial planning or retirement planning take place, it is normally not the investment’s fault but the incompetent or self-serving planner that used their influence to their clients chagrin.

**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.

Each investment allocation, when used properly, will complement the whole of the financial plan, thus creating if you will a superior retirement rather than a shortsighted out of balance plan. Do not try to use alternatives where annuities are the best answer. Likewise, do not use annuities where they do not fit or give you a reasonable advantage. There are obviously investment vehicles that are different. Yet, they may each in there own way, at certain times, help accomplish the financial objective. If you have a larger portfolio, it is probably not wise to place most of it in annuities; however, if you have modest or moderate funds that you must rely on for present or future income, then having the majority of it in an annuity may be the best strategy. An alternative for the sake of an alternative with no solid rationale behind it will likely lead to a disappointment at best. Using a skilled financial planner/educator who knows how to really put the ingredients together can enhance your success. It is very important to know that the planner is competent and trustworthy. Do a serious background check and also check references before handing over any of your life savings. As you should know, there are a lot of investment alternatives to choose from. Here are a few to consider:

• Certificates of Deposit
• Money Markets
• Bills
• Savings Account
• Treasury Inflation Protected Securities
• U.S. Government Bonds
• Municipal Bonds
• Investment-Grade Bonds
• Junk Bonds
• Bond Funds
• Bond ETFs
• Preferred Stock
• Common Stock
• Managed Money Accounts
• Stock Options
• Real Estate Investment Trusts
• Mutual Funds
• Exchange Traded Funds
• Unit Investment Trusts
• Closed-End Funds
• Modified Endowment Contracts
• Investment-Grade Life Insurance

Fixed Annuities

• Lump-sum or periodic contributions
• Invested in mostly high quality A-AAA bonds
• No risk to client. Insurance company assumes all risk
• Guaranteed interest
• Modest growth
• 3% to 6% interest crediting possible
• 1- to 15-year term
• Predictable, simple
• Guaranteed retirement income
• No annual fees

Fixed Annuity with Indexing Options

[FIA, Fixed Index Annuities]

• Lump-sum or periodic contributions
• Invested in mostly high quality A-AAA bonds
• Annual interest crediting risk to client
• Insurance company **guarantees principal
• Higher rate potential based on index performance (such as S&P 500, Dow Jones, NASDAQ, etc.)
• Moderate growth
• 4% to 8% interest crediting potential; varies with index performance
• 3- to 14-year term
• Sophisticated,greater potential
• Guaranteed retirement income options
• Annual fees, minimal to none

Variable Annuity

• Lump-sum or periodic contributions
• Invested in sub-accounts chosen by client
• Principal and return risk. Client assumes investment responsibility
• Higher rate potential based corresponding investment risk
• Moderate to aggressive growth
• -5% to +10% return potential; varies with economic factors
• 3- to 10-year term
• Complex, greater potential and risk
• Guaranteed retirement income; may fluctuate based on returns
• 2% to 5% annual fees

Immediate Annuity

• Lump-sum-only contributions
• Invested in mostly high quality A-AAA bonds
• No Risk to client. Insurance Company assumes all risk
• Guaranteed income
• Minimal growth
• 1% to 3% Internal Rate of Return
• 5- 10- 15- 20- 25- 30-year and lifetime terms
• Predictable, simple
• Guaranteed retirement income
• No annual fees

Common Annuity Benefits

• Safety: Backed by highly rated state regulated insurers
• Tax Deferral: Tax-deferred growth
• Higher Return: Better interest rates typically than CDs
• Life Insurance: Death payout **guarantee options
• Liquidity: Flexible withdrawal privileges
• Unlimited Contributions, Unlike IRAs and 401(k)s
• Inheritance: Pass money directly to heirs bypassing probate
• Lifetime Option: Income you can’t outlive (Annuitization or a Living Benefit Rider)

Each of the investment categories and the four listed annuities serve a particular purpose. It is important to look at your age, size of assets, future income needs, and inflation and then do a cash flow analysis over your life expectancy during retirement. This will help you choose which investment or annuity is right for you. Financial planner/educators can be valuable when you are close to making a decision on an annuity or an investment. Avoid insurance salesman that are just pushing their higher commission products.

Question: How can you be certain if an advisor is just a self-serving, commission-motivated insurance salesman?

Answer: Their breath stinks! Otherwise known as commission breath. They are a little pushy, lacking objectivity and detail their goal is to “close you” (you are their lead). You can actually smell their breath from miles away!