Should you trade in a high-priced annuity?

Your needs change over time.  So if you’re still paying for annuity features you no longer need, you have options.

Make no mistake, while some annuities are expensive, not all annuities are bad.  If you rely on a pension, for example, then you already benefit from an annuity. Used correctly, annuities can help investors avoid the biggest danger to their investment results:  Themselves.

But how are we to know given how varied and complicated these products are?

And how are we to know if we even need an annuity at all?

For retirement purposes, you can choose how to allocate your assets among a variety of products, whether it be traditional investments or insurance (annuity) contracts or alternative products.  Your optimal allocation depends primarily on the amount of income you need to meet your fixed and discretionary living expenses and any legacy goals you have for your family.  Choosing a product before understanding what you need doesn’t really make sense.

Interest rates matter too, as the product features and the level of guarantees provided by a given annuity manufacturer (i.e., the insurance carrier) depend on the rate of return they earn on the premiums you are paying them.  In recent years, some insurance carriers have even offered to buy back annuities they sold years earlier, which offered more generous benefits when interest rates were higher.  A low interest rate environment, like today, may not be the optimal time to choose an annuity product for your retirement needs as you may be stuck with lower benefits for a long time.

A good retirement income plan should also NOT be done by someone who makes a living selling annuities.  Rather, it should be done by someone looking at all options available, explaining how those different options work and actually showing you what you can expect.  Our staff of Certified Financial Planners will review your annuity with you and help you determine the best options for your retirement and investment needs.

Annuities done right may lower your returns when compared to other options.  But they may also lower your risk.  And for some, this tradeoff may make sense.

Just because “guarantees” are included, however, annuities are not without risk.  There is a risk that the insurance carrier may not honor their guarantees, there is a risk that the guaranteed income may not keep up with inflation during your retirement (because the payouts are typically fixed for life), and there is a risk that the lifetime payout is less than what you could obtain for your money elsewhere.

Annuities aren’t the only antidote to destructive investor behavior either.  Overcoming the most common investor mistakes of “chasing returns” when markets a moving higher and “panic selling” when markets correct may be accomplished simply by working closely with an experienced advisor.

We help clients of all shapes and size navigate transitioning to retirement and the years that follow objectively and with you and your family’s long term best interest in mind.  And we can help you make sense of any annuities you own and how they may play role in your retirement income planning.

If you or someone you know owns or is considering an annuity sold on the promise of guarantees, then let us take a look to see if it makes sense.  In our experience, many investors don’t fully understand what they own or are being sold, and many don’t even need it in the first place.

If you have questions, please reach out to your ACM Wealth Advisor.

Advisors Capital Management, LLC is an investment advisor registered with the United States Securities and Exchange Commission. Registration does not imply any degree of skill or training. All investing carries risk, including the potential for the loss of principal and past performance is no guarantee of future results. This content is for informational purposes only, can change at any time without notice, and is not investment advice or a recommendation to trade any security. Indices are not available for direct investment. We only provide services in jurisdictions where we are registered. Our disclosure brochure (ADV Part 2A) and customer relationship summary (ADV Part 3) are available at https://adviserinfo.sec.gov and upon request.