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

in retirement.

 

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,

for example.

 

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.

 

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