Ten years ago on a cold dark night

Published: Thursday, March 21, 2013 at 04:18 PM.

We had a case where the owner was paying for an income rider but with no named beneficiary. Until we fixed it, the owner was paying for a benefit he would never use. Working with the new agent of record (I’m not insurance licensed), we increased the stock allocation in the annuity. If the market continues higher the guaranteed locks in at the higher level, if the market goes down we have the guarantee. We offset the additional risk by making the rest of the portfolio less aggressive. If you have a lemon, you make lemonade.  Some annuities are like the baby — so ugly it’s cute. 

Don’t run out and dump your annuity like many a fiduciary planner recommends. Some older annuities have a 3 percent or 4 percent guaranteed investment option. Years ago, interest rates were higher and 3 or 4 percent looked cheap, not today. For the fixed income slice of their overall portfolio, clients utilizing these fixed options are at the top of the mountain. Absent surrender charges, they have the equivalent of a 3 percent or 4 percent investment grade bond with money market liquidity.

Older variable annuities use the now out-of-date life expectancy table so if annuitization is on the horizon an older annuity provides more income. You have an ironclad contract with the insurance company based on shorter life expectancy.  Invest less aggressively as you get closer to annuitzation.

No one should put an entire 401(k) or IRA in an annuity; only a portion of your assets should go into one. At our shop no one has bought an annuity in over four years but we have the discussion with everyone over age 60. We put clients first. Some talk the talk; others walk the walk.

Let me thank Gwen Break for giving me a break (little b) and Lefty Frizzell for the “Long Black Veil."

Buz Livingston, CFP offers hourly financial planning and fee-only investment management to clients along Florida’s Emerald Coast.  Contact him at 267-1068, Buz@LivingstonFinancial.net or www.LivingstonFinancial.net.


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