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Choose an Annuity Based on Your Top Priority


Many annuity products claim that they can give you the best of both worlds or offer you everything you need in just one product.  The thing with annuities is that they offer you great benefits, but you really need to focus on the benefit that is most important to you first.  In the Marietta Daily Journal’s “Making annuities more effective,” William G. Lako Jr. suggests that annuities should be used for one main focus.  He means that instead of hoping to solve all of the issues related with finances and retirement in one product, solve the issue which is most important to you first.  This might be guaranteed income or it could be the growth of your money.  Growing your money in retirement in a safe way is important to many people.  Others would rather protect the money that they already have, but be guaranteed a stream of income that will last over their lifetime.

There are annuity products that can meet the needs of both of these types of people.  But you will give up a little bit of one to get both needs met with the same product.  Mr. Lako believes that the most effective way to use annuities is to focus your product purchase on your main goal.  You buy an annuity to transfer your risk to the insurance company.  Once you choose an immediate or deferred annuity, the insurance company will make payments to you for as long as the contract lasts.  Many people choose to receive income for the rest of their life, which is factored into the amount of your payments.  Insurance companies assume the risk because they will continue to pay you even if your account balance goes down to zero.  Your risk comes in if you die prematurely and don’t deplete your entire account balance.  With that being said, using annuities as the opposite of life insurance takes your risk out of the equation.  You are insuring against running out of money in retirement, whether or not you live a long life doesn’t matter as much when you think of it that way.

If income is your number one goal, you can work with a financial advisor well-versed in annuities to find a fixed annuity product that will keep your money safe and offer you income payments.  An immediate annuity allows you to transfer both longevity risk and stock market risk to the insurance company.  In exchange for this, you give up most of your growth potential.  But that is exactly what many people are looking for as part of their overall financial plan.  On the other hand, if growth is your top priority, there are many deferred annuities that offer guaranteed growth and principal protection.  Once you find a product that meets your top goal, you may be able to find the potential to cover other smaller goals as well.  But the author recommends starting with one goal in mind and letting everything else be the icing on the cake.  A financial advisor can look at your specific situation and determine the annuity product that would work best for you.

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