What’s so special about annuities, and why do the top 1% in this country love them so much? Let’s break it down in today’s video.
R.L. Brown, a Wealth Management company, broke down the five reasons high net worth individuals love annuities. They have gotten a bad wrap from financial advisors because a financial advisor can’t charge you ongoing fees if you invest in annuities. That’s bad for their business, but that’s none of our business. We want what’s best for our financial future. The basic definition is an insurance product that pays out a steady income stream in retirement. It’s meant to be used as part of a strategic plan for your golden years that can be mapped out with a professional.
Here’s how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. You can decide if your annuity payments will come monthly, quarterly, annually, or even in a lump sum.
Let’s take a look at some of the top reasons why high net worth individuals flock to annuities and why you possibly should consider it as well.
- LESS RISK
Annuities are guaranteed transfer-of-risk products, and many people enjoy taking advantage of at least some investment vehicles that keep their assets out of danger.
Because annuities technically aren’t in the investment category, you won’t be earning a lot of extra money on them, but you won’t lose it. It’s simply a good retirement savings option. High net worth individuals typically already have enough risk in their lives in terms of their jobs and other investments, so they view annuities as a way to take risk off the table.
- SHIELD FROM CREDITORS AND PREDATORS
In some states like Florida and Texas, annuities are protected from creditors and frivolous lawsuits. This can mean a lot to 1%-ers since they are often preyed upon by money-hungry companies and individuals. Fixed annuities, where one opts for a guaranteed payout of their money, are the only products that offer such protective promises.
- LESS TAXES
It’s true: high net worth individuals pay a lot more in taxes than the rest of the population. But annuities can help with that.
Tax deferral and exclusion ratios on annuity payouts are two strategies to help 1%-ers lower their tax exposure. Fixed deferred annuities can guarantee an annual percentage yield as short as a three-year surrender period. Talk with a financial professional like me about which annuity strategy could be the most effective for your situation.
- INTEREST RATES ARE NOT AN ISSUE
High net worth individuals focus more on the contractual transfer-of-risk guarantee that annuities offer rather than their interest rates. For that reason, they don’t fret over trying to plan their annuity purchase with ever-fluctuating interest levels perfectly. Their simple approach to investing in annuities usually pays dividends that outweigh whether or not they secured an optimal interest rate.
- ESTATE PLANNING POSSIBILITIES
While annuities can’t be transferred tax-free to beneficiaries like life insurance, they efficiently pass outside probate. As you probably know, probate is the process a legal court takes to conclude all your legal and financial matters after your death. Since it can be a lengthy and expensive affair, the fact that annuities are free from it is a really great thing. Many 1%-ers use contractually guaranteed legacy strategies as a way to include annuities within their estate plan.
THE BOTTOM LINE
While not everyone falls into the 1% category, it’s still valuable to be educated on how and why these individuals purchase annuities. If you decide to go this route, make a transfer-to-risk decision based only on the contractual guarantees and place your money only with carriers you trust. And above all, consult a licensed professional before you leap. I only deal with the top triple-A-rated companies that have been around for a long time and are names you will recognize.
Set up a time to meet with me to see what an annuity will look like in your portfolio using the calendar link here in the comments section or on my healthwealthandrealestate.com page on the Get in Touch link at the top right of the page. Companies no longer offer a pension plan because it is too costly for them to manage; with an annuity, you can set up your own and have peace of mind knowing that you will never outlive your money in retirement. Retirement is a time of relaxation, enjoyment, and spending time with family. Don’t let financial stress get in the way of living your golden years to the fullest. Take time to prepare today so you can rest comfortably and confidently in what tomorrow may hold. Wishing you the best days ahead.