My Annuity is Not an Efficient Use of my Money
Often from the popular financial press one will hear
that the annuity cannot be relied on for the
exemplary returns needed to sustain oneself
This is a purely subjective statement, usually propagated
by financial pundits who can afford to spend their
full time hunting high and low for the highest
producing value stocks.
For the rest of us interested in other pursuits, an
annuity contract can be a very efficient use of ones
money. Once again, this is a subjective
statement from the point of view of someone
who simply wants a reliable stream of income,
Annuity contracts are extremely reliable for this
purpose, of course. In fact, that is why they were actually
invented ! According to Investopedia, Roman
soldiers in Biblical times were paid in annuities.
In the late 1700's, annuities became a useful way for churches to fund the salaries of their ministers. During the American civil war, Union soldiers were compensated at times through annuities. And in the boom years following the 1929 Depression annuities finally came into their own as the public clamored for safe
vessels to stash the results of all their labor.
Even today, lottery winners get paid in annuity contracts. Courts honor judgments in the form of annuities as well.
So the conceptual idea of an annuity contract being an inefficient use of money has more to do with,
once again, the unending race for high returns that so many pundits and planners compete in.
The rest of us might not be as predisposed to chasing high returns with our money. We choose reliability, permanence, guarantees. After all, if risk taking was such a tried and true salve for human angst, we would
work not for a salary, but for 100% commission, where the big money is.
As it is, we all have contracts that we work under instead. And perhaps that is what some in the financial press keep forgetting; that the legal and contractual return of your money with interest is morally superior to what you may be able to make in the high flying world of the stock market. One is certain, the other is not.
So annuities, by definition then, are actually the most efficient use of your money. Because the annuity is based in a real contract, not fantasy of what might happen. And if you have to pay your rent every month, or you have to buy $250 groceries every month, or make that car payment etc....you need a reliable way in which to do it. No better way than a risk management company providing you a written guarantee that they owe it to you personally.
For the money that you want to see produce something big and different, the money that you are not inclined to be part of the guaranteed portion of your portfolio, that's the money you can go chase returns with, and by the way, I wish you good fortune on that.
But not your annuity dollars !
1. Keep working at a job you enjoy.
2. Source out more good annuity contracts and lock in your hard earned efforts.
3. Live beneath your means.
Preferably, repeat steps 1 through 3.
Now, as far as which particular annuity contracts to buy, that is another matter. And that is where education comes in.
You will be tasked with choosing between the highest minimum guarantees or the
highest potential crediting strategies. Either option will always guarantee zero loss (with fixed or fixed indexed annuities), but you need to educate yourself on what is more important, a higher minimum guarantee or a higher potential, or possibly a hybrid of the 2 somewhere in the middle. That is a subject for a different article. Check out "Shop for your Favorite Crediting Strategy" to learn more.