Hi, everyone, we’re gonna call this video today the Annuity 101. As you can see on the screen here, these are the four kinds of annuities. We talk a lot about annuities in our retirement planning with our clients. There are some good ones here, there are some bad ones, there are thousands of annuities out there in the annuity world. It’s really important to find one that is right for you and that meets your needs, that’s suitable for you – if an annuity is even appropriate for you at all. So here’s an annuity 101.
You’ve got number one: Immediate Annuities. Immediate annuities are like pensions. An immediate annuity can provide immediate income starting even in 30 days. Let’s say you put $100,000 into an immediate annuity. Next month, that can start paying out immediate income that lasts for a period of time, 10-20 years. It can last you the rest of your life, but most of the time you don’t want to put your own money into number one because you can’t touch it for the rest of your life, so it’s not flexible there, and also it’s based on current interest rates. Interest rates are really low, so you’re not going to be earning much on your money, and most importantly you can’t touch it once you put it in. Really the only good thing in our opinions about immediate annuities are that you can receive immediate income that lasts you for the rest of your life – like a pension. So all pensions are funded by immediate annuities federal pensions: teacher pensions, all kinds of pensions.
Number two: Deferred Fixed Annuities. Deferred fixed annuities, I like to call them CDs on steroids. Okay? That’s our nickname for them. A deferred fixed annuity right now will pay around three maybe three and a half percent for three or five years more than you can get in a CD, with tax advantages that CDs don’t have. You can get tax deferral compound interest, or you will get that in a deferred fixed annuity and right now for a three year deferred fixed annuities paying around three percent, of five years paying around three and a half. Compare that to a five year CD right now paying around 2.2-2.3 early on in 2020. And the yield and interest you’re going to get from a deferred fixed annuity is going to be more than a CD with tax advantages.
Number three: Variable Annuities. Most financial professionals do not like variables. We don’t care for them either because they have high fees typically 3/4, I’ve seen I’ve seen 5%, in annual fees before on a variable annuity, and what’s worse is when the market goes down your variable annuity account value will go down. So we don’t really like them much. Most financial advisors and professionals don’t either.
What we do like a lot, when we do use annuities, are Number Four: Fixed Indexed Annuities. Kind of combines number 2 and number 3 into one vehicle. They’re 25 years old came out in 1995 and they take the best of two and three and provide them into one hybrid vehicle. You’ve got principal protection from market downturns. You can never lose a penny when the market goes down. You get to participate in some of the market upside when the markets and indexes go up by linking and mirroring to a major index like the S&P 500. And then the fees are typically 0 to 1% often times 0 maybe 1% at the most. Compare that to 3 to 4 percent in fees in a variable annuity with the downside protection that a fixed index annuity offers, and number 4 is what we use a lot of times if an annuity is suitable and appropriate. Whenever you hear anything bad about annuities, it typically comes from 1 and 3. Whenever you hear anything good about annuities, it typically comes from number 2 and number 4.
And that folks is your annuity 101. So if you have any questions about annuities at all, please call us, please email us, visit our website, reach out to us, we’d be happy to give you an annuity x-ray if you currently have an annuity, or are wondering if an annuity is right and suitable for you at this time in your life.