Should an Annuity be Part of My Financial Plan?

Hello, my name is Brian Scriboney. I'm a financial consultant. And in these videos I do my best to just try to take common questions that I get from listeners and followers and clients and try to address them. You know, everybody's got a lot of the same questions. And so I just do my best to try to provide general, general responses to these common questions just to get you thinking, maybe provide you with a little bit of guidance. My goal is always to try to point you in the right direction. And today what I want to talk about is annuities. You know, I get a question very often from people about, hey, should I buy an annuity? You hear, at least here in St. Louis, the radio stations are inundated with annuity salesmen and there's seminars that people are invited to to go hear about an annuity product. And then you have people on the money management side that talk against annuities. I'm not going to mention names. There's some, there's a bigger name person that advertises across the country. Every time you turn on the Internet or tv, his face is on there talking about how much he dislikes annuities. And what you got to understand, in my opinion with this, and I've written articles about this, you can find them on my website. But annuities and investments, they're not in competition with each other. And that's where I think both of these different sides of things get confused. The annuity salesman is talking against the risk of investments and the investment guy is talking against the fees or limitations of annuities. And you know, in some ways they're both right, and in a lot of ways they're both wrong. So what I hope to do in the few minutes that we have here is just to try to explain to you how you should be viewing these things. So an annuity is basically, it's a program that's issued by an insurance company. Okay. And of course, with any guarantee that you get from something, it's always backed by the claims paying ability of the insurance company. So if you have a guarantee, note that it's only as good as the company that it's with. But with that being said, is that people buy annuities for the guarantees. So you can have programs that are guaranteed against market risk. You have fixed annuities that have fixed rates. You have variable annuities that have very similar investment options as you would in your 401k or in a money management account. Okay? So think of a fixed annuity like a bank CD. It's very similar. Banks issue CDs, insurance companies issue annuities. So very comparable. A variable annuity, like I said, is just made up of a bunch of different investments. And then there's hybrid programs out there called indexed annuities that are tied to an index. These are kind of complicated and I won't get into all the mechanics of it, but basically you have no risk of losing principal, but you do have some upside potential of and index, such as like the S&P 500 or the NASDAQ or some other type of index that's used on the stock market, and they just cap your rate. So anyway, those are the three main types. But the point of what I'm talking about here is with an annuity is that people buy them for guarantees. And I'll explain to you the most common way people use them, it's when they're approaching retirement. We've talked about this before, if you've watched some of my other videos, is that when you're working, you're accumulating money, you're trying to just get the best from of return that you can. But when you reach retirement time or close to it, you're really looking at ways to preserve your assets. You're looking for ways to preserve the purpose of the money. You know, you either have a purpose of spending the money or you have a purpose of using that money as income or a source of income, kind of like a golden goose. So it's very important to distinguish between the two. Because if you're just planning on spending your money in a short period of time, then an annuity is not going to make any sense. If you're trying to invest long term, an annuity probably not going to make any sense. But if you're, you know, approaching retirement time and you're trying to preserve your principal or you're trying to protect an income stream, then annuities make perfect sense. Because your focus isn't necessarily on investing anymore, it's focused on how you're going to use the money. And so it's just real important to distinguish, you know, how you're going to use those dollars. And so when I hear people make blanket statements, and it's very common in our industry for people to make very blanketed statements. And it drives me nuts because I know of things, but if you're talking to an annuity salesman and they're just trying to push you into an annuity and trying to get all your money put into an annuity, you need to just run for the hills. Or if you have an investment guy that's just bashing the annuity and saying you should never do them again, you need to probably find a different guy. Because there's not an absolute when it comes to these products. Sometimes they make sense, sometimes they don't. So if you've got somebody on either side saying that it always makes sense or it never makes sense, then you're not talking the right person. So there's plenty of financial guys out there that will shoot you straight and give you the right information and point you in the right direction, not just trying to sell you something. So anyways, I hope you found this helpful. My goal with these videos is not to go a mile deep into these topics, but at least give you a way of thinking through these things. This is a very common question I get about annuities, and I get a lot of questions about different topics. And my goal with these videos is to try to address those questions, give the best response that I can. If you do have a question, shoot me an email. I can't promise you that I'm going to get to it, but if it is a common question that I'm getting, then I'll definitely make time to try to shoot a video. Hey, I hope hope you found this helpful and I hope you have a great Sam.