Fixed, Indexed, or Variable? Which Annuity is Right for You?

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It's the One of a Kind Financial Show Daily with your host, Mike Milligan. With retirees prioritizing guaranteed income and market protection, annuities are making a comeback. But before you sign anything, here's what you really need to know. From fixed to fixed index to variable to deferred income to immediate income, annuities come with a lot of complications. But, They are tools in the financial plan that can be used to combat things like longevity, inflation risk, and other concerns to get a higher risk-adjusted return. For those who are looking for more information on annuities, after listening to this today, if you text NEWS, N-E-W-S, to 600-700, I'll send you a comprehensive report that Alliance Bernstein did. That outlines how, when compared to a 60/40 portfolio, 96% of the time, a fixed index annuity and stock portfolio will outperform that typical 60/40 portfolio. And it actually shows by how much. And compounded over a long period of time, a 1.5% to 2% to 3% to 4% higher return is significant assets, not only during your life, but also for your legacy. Enjoy this segment from the One of a Kind Financial Show. And if you want that Alliance Bernstein report, text NEWS to 600-700, and we'll get that over to you. We'll see you soon. Be one of a kind.

All right. So when you hear the word annuity, what comes to mind? High fees, locked up money. I hear they're bad. Well, annuities today are not the same products that were sold decades ago. In fact, annuity sales hit record levels in recent years. as higher interest rates, improved payout structures, and guarantees. But that doesn't mean they're right for everybody. So let's separate myth from reality. All annuities are the same. I know that's not true, Mike.

They're not. There's— it's like, it's like saying all cheeseburgers are the same or all cars are the same.

Right.

Right. It's just, there's not truth to that. And there's so many people out there that say, I hate annuities. Well, that's 'cause you don't understand 'em and you're trying to group something in because you have something else to sell. There are 3 primary types. I'm going to go into Professor Mike time right here for those listeners who know that I also teach at OU.

Sure. Go right ahead.

There's 3 types of annuities, guys. There's fixed annuities, guaranteed interest rates for guaranteed terms. It is the insurance company's way of acting like a CD. It's what it is, fixed term, fixed rate. And by the way, these rates on these guaranteed fixed annuities are often higher than what you get in CDs or money market accounts. The second type of annuity is an indexed annuity. This is growth tied to a market index with downside protection and not being directly invested in the stock market. So think of the S&P 500 where you can get 60% or 70% or 80% of that return, but no chance of losing money for a specific time. And then finally, there's variable annuities. Now, these are invested in the market because they're market-based returns with the ups and the downs in the market. Now, you could also choose immediate income or deferred growth or deferred income structures. See, annuity is a category. It's not a single product, and it doesn't mean just one thing. There's a lot of teachers and a lot of firefighters and a lot of police officers that we know who are in tax-sheltered annuities. Those are commonly also referred to as 403 plans. So grouping annuities as one single thing is just wrong.

We could do a whole show on annuities, Mike. Am I right?

100%.

Absolutely. Here's another myth. Returns are too low. Not true.

Well, it depends on the goal. If you're trying to beat the stock market every year, an annuity probably isn't the right tool, including in a variable annuity, by the way, because a variable annuity comes with higher fees than what a traditional index fund would come with.

Yes, it does.

If you're trying to create predictable income, uh, maybe be an alternative for bond investments, reduce volatility, or even protect your principal, Well, that's where annuities can fit in. If you're also trying to get a higher rate of return with some tax advantages than what you get in a CD or a money market account, an annuity, a fixed annuity, may be right for you. See, annuities are generally designed for stability of your account with some guaranteed growth and income. They're not designed to be aggressive growth vehicles.

Absolutely. The show is the One of a Kind Financial Show with Mike Milligan. Mike is with One Oak Financial. If you missed the number, let's give it again. 800-748-1412. 800-748-1838, or text the word ideas to 600-700. Do it right now. The folks at One Oak Financial standing by this weekend. In fact, Mike's going to be on the phones himself. 800-748-1838, or ideas to 600-700. Text the word ideas to 600-700. Fees are always sky high. That's not true either, right?

Well, some annuities have minimal Internal fees, and some have none. A multi-year guaranteed annuity has zero fees in it. Others, especially variable contracts with income riders, now that can be more complex. That can get in the range of 3% to 4% fees on your, on your annuity. The key question is, what am I paying for? What guarantees am I receiving? And is the trade-off worth the cost? You should always understand the cost before signing. Anything.

When I die, the insurance company gets to keep all the money.

That is, that's only if you have annuitized the contract. See, this is again another example of that first question, or, you know, are all annuities the same? Well, they're not. An annuity that is annuitized, meaning you've trade— you've put the money that you invested in the annuity or placed into the annuity for a lifetime, a term certain, or a beneficiary payout, Well, then, yeah, you could put your principal at risk of staying with the insurance company. But the income depends on how you structure the annuity.

Uh, I won't be able to access my money. That's another one.

Well, annuities are long-term contracts. Uh, there's some shorter ones out there now, 2, 3 years, but for the most part, they're 7 to 10 years. And they're meant to be there because of the benefits you get with that. But however, many annuities allow for 10% of your value to be withdrawn penalty-free a year. And there's increased flexibility after your initial surrender period. See, they're designed, they're not designed to replace your emergency fund. They're, but they are designed to be able to get you a higher benefit or return than some other element of your investment portfolio.

All right. A minute or two left. An annuity covers everything. Nothing covers everything, right?

Oh my gosh. Would you put, you don't put all of your eggs in one basket, folks. So like if you have ever been told to put 100% of your money into an annuity, well, that's just, that's just wrong. You put a little here, a little there, and a little somewhere else. And then even within annuities, you could structure or ladder those annuities to where maybe some can be lifetime income, some can be protection or inflation protection so you don't outlive your assets, and some can be stability during wild market swings. But you still need liquidity. You still need growth assets to keep up with inflation, and you still need tax planning. So annuities are just a piece of the strategy, not the entire strategy.

All right. Got about a minute left. So how about some final thoughts on annuities, Mike?

Everybody who's listening now, I have a gift for you. I recorded a podcast with Tom Hegna. Tom Hegna wrote a book called Paychecks and Playchecks. He's been in the business for 40 years. He does a much better job. Matter of fact, He's often sought after to speak on CNBC, PBS, Fox, Bloomberg. He's often sought at, and he's sought at around the country as an annuity expert. If you want more data on, like, from a true expert, if you call in today, I'll make sure you get a copy of that podcast that I did with Tom. And so you can hear that 25 to 30-minute conversation on, like, the power of annuities. He says, I asked him in that specifically, are annuities bad? And he says, no, I own 13 of them. And if I thought annuities were bad, do you think I would own 13 of them? So I would give you a copy of that podcast for you to listen to. And then if you have further questions, we'll follow up with you. But annuities can be part of the one-of-a-kind financial plan. They're not a part of everyone's financial plan, but they can be a part of yours, especially if you're looking for guaranteed income, principal protection, or rates greater than what banks are currently giving at CDs.

All right, let's give you the phone number, get on the calendar to get you all set up with that one-of-a-kind financial plan that Mike just talked about. 800-748-1838, 800-748-1838, or text the word ideas to 600-700. The folks at One Oak Financial, Mike, standing by this weekend. Get on the calendar, get you all set up. There's no cost, there's no obligation. Get a better handle on your financial situation. It starts by picking up the phone. Nothing changes unless you do that. Mike and the team cannot help you Unless you call 800-748-1838. Or you'd like to text, sure, why not? Ideas to 600-700. Do it right now.

This is Mike Milligan. That has been the One of a Kind Financial Show Daily for today. I appreciate the continued listenership that you bestow on us by coming back daily to hear retirement investing, legacy, emotional psychology tips, psychological tips when it comes to your money. If this brings value to you, I'd love for you to comment what value that brings. I'd also love for you to check out the other media that we put together, the Ideas by Mike podcast, where just this week we launched an episode with Deirdre Van Nest. Our recent guests have been Casey Shoen on tax strategy, Jill Schulman on the science of being brave, and Adam Dale how fee-based financial planning works in this, the next leg, the next quarter century from 2026 to 2050. And just as a reminder, Ideas by Mike, doing business as One Oak Financial, is an unaffiliated entity of Advisory Alpha LLC, where I am an investment advisory representative. All opinions expressed by me and Gary on the One of a Kind Financial Show and on this Daily podcast, the One of a Kind Financial Show Daily, are just those. They're my, my opinions. This is for educational purposes only. Please do not use this to make education or to make financial or investment decisions on your own without consulting a financial professional. Thanks again for listening, and we will talk to you soon.

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