Concept vs. Product—Annuity Revisited

Transcript of Podcast Episode 167

Hello, this is Bill Rainaldi with another edition of Security Mutual’s “SML Planning Minute.”  In today’s episode we’re going to be taking a look back at one of our favorite previous episodes, we’re going to be going where no one has gone before, taking a look at something that some people consider to be a dirty word: annuities!

Back in episode 38 we attempted to change the narrative.  Episode 38 was the first episode of a series designed to help you develop an overall spending plan.  A spending plan is the foundation of a financial plan.  Yes, a spending plan and a budget are the same, but calling it a “spending plan” eliminates the negative connotation.  The same idea is true with annuities.

In the fifth annual Guaranteed Lifetime Income Survey conducted by Greenwald & Associates and CANNEX, Tamiko Toland, head of Annuity Research at CANNEX said that “It’s clear from the research that clients are most receptive to annuities with guaranteed income when the product is positioned as part of a broader retirement income strategy – the reason why most product owners said they chose them.”   She also went on to state that “There are also certain demographics with especially high interest in income guarantees.  It comes as no surprise that women, in particular, are interested in these products as a means to avoid running out of money in retirement.”[i]

Clear communication is important when dealing with any financial product.  Modern financial products can be confusing with their many options.  However, in its basic form, the concept of providing a guaranteed income stream for life or a guaranteed income stream over two lives is what an annuity does.  Many consumers value guarantees, but according to the study, 35% of consumers are less interested in a guaranteed income product if it is labeled as an annuity.

Guarantees are important in your financial portfolio.  A guaranteed income stream purchased through an insurance company can provide a meaningful strategy to cover expenses during the time when your formal paycheck stops.  It can wholly or partially provide a guaranteed income, similar to the income you received from an employer during your formal working years.  One financial planning concept is to total up your projected monthly fixed expenses.  For example, fixed expenses you may have would be property taxes, or home association fees, phone, heat, electric, etc.  A fixed annuity can be purchased to help cover these expenses.  By considering this approach you gain the peace of mind knowing, at the very least, your major living expenses are covered and not subject to any market adjustment.

Consider the value with a guaranteed income stream, the concept, and not the product, an annuity.

[i] https://www.cannex.com/index.php/2019/06/12/fifth-annual-guaranteed-lifetime-income-study-in-u-s-by-greenwald-associates-and-cannex/

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 The applicability of any strategy discussed is dependent upon the particular facts and circumstances. Results may vary, and products and services discussed may not be appropriate for all situations; each person’s needs objectives and financial circumstances are different and must be reviewed and analyzed independently.

 Product Guarantees are subject to the claims paying ability and financial strength of the issuing insurance company. We encourage individuals to seek personalized advice from a qualified Security Mutual life insurance advisor regarding their personal needs, objectives and financial circumstances. Insurance products are issued by Security Mutual Life Insurance Company of New York, Binghamton, New York. Product availability and features may vary by state.