4 Reasons to Use an Indexed Annuity

1.      Equity Markets are at all-time highs. The major indexes are sitting at or near all-time highs providing a great opportunity to lock in gains using a FIA. We are in the midst of a 104 month Bull Run which is the second longest in the post WWII era; there has never been a Bull Run make it to 10 years. In addition, the PE Shiller ratio is north of 32 and the only other time it was above 30 was just before the last long Bull Run of 113 months ending in March, 2003. Subsequently, the S&P went down for the following 3 years consecutively (2000, 2001, 2002). During this time the S&P 500 lost more than 40%. Some say there is still upside to be had but the question isn’t if there will be a correction, but when? Would you rather arrive at the airport an hour before your flight or one minute too late?

2.      Bond Funds offer poor/ risk reward proposition. 1953 to 1981 was generally an increasing interest rate environment, during which time the average annual return for all bonds was 2.48%. Conversely, 1981 to 2015 was generally a decreasing interest rate environment and during this time bonds fared much better; average annual return for all bonds was 10.74%. It appears that we are entering a rising interest rate environment with the Feds reducing capacity and hinting at two to three 25 bps interest rate increases in 2018. An indexed annuity may provide similar or better returns in the near term with zero downside and no fees or expenses as well as tax deferral and potential to avoid probate.

3.      Highest Upside Potential for a product with principal protection. Your alternatives:

a.      Savings account

b.     CD

c.      Treasury Bond

d.     Corporate Bond held to Maturity

e.     Fixed Annuity

f.       Money Market Account

4.      Lifetime Income Benefits. Indexed annuities with a lifetime income rider offer the highest guaranteed lifetime income without giving up control of the asset. The fixed income portion of a portfolio is expected to return far less than he has in the past. A fact many believe shoots holes in the 4% withdrawal rate so many have counted on. Depending on what journal you are reading the safe withdrawal rate from a 60/40 portfolio is about a percent less. A credible study with much math behind it says the 4% withdrawal rate has an 18% chance of failure and that a safer withdrawal rate would be 3.2%. Purchasing a lifetime income with 15 to 20% of a portfolio can increase the likelihood of income lasting for a lifetime. By reducing the amount of income needed to be taken from the equity component sequence of returns risk is mitigated. Finally, it is what clients want. A study titled, “The Language of Retirement” was published in March of this year and surveyed individuals to get their opinion towards various investment products. 90% said they were either very or somewhat interested in lifetime income and 79% said they would be willing to pay more for an investment that offered income guaranteed for life.