The Big Idea

An annuity is a product that a lot of people don’t really like to hear about. And if you don’t have one, you probably won’t get one. But if you do have one, um, You were probably sold one and you’re wondering if it’s a good product or not.

I don’t offer them, as a product that I have for clients, but I do help educate people on them.

WHAT SHOULD YOU KNOW ABOUT YOUR ANNUITY?

It is a product that, if used for the wrong reason, it’s a very inefficient vehicle. It’s like using a Ferrari to take multiple children to school. A much better product would be a school bus, right? You want to use the right vehicle for the objective that you’re trying to achieve.

An annuity salesmen like a contractor that only has a hammer as a tool. And if you only have the hammer as a tool, then every client begins to look like a nail.

Unfortunately, I’ve seen this to be true in the industry. Some salesmen only sell annuities. So regardless of your situation, you’re going to be recommended to have one of these products. And that’s the part where I think it’s not good.

FEES

So the first thing to understand is the fees because the fees are what’s going to impact performance. If you have a variable annuity, it’s going to have fees in there. It’s going to be 1% to 2% just right off the top for the annuity and then whatever income rider or death benefit rider is included in that annuity.

If it’s an income rider, there could be a benefit to having that annuity, if you use it.

Conversely, what I often see is, people will have a variable annuity with an income benefit rider, but they’ll never use the rider. They’ll never use the income. They’ll never actually take the benefit of what they’ve been paying for for a long time in those scenarios, the annuity company wins.

So, you definitely want to understand what the fees are. What type of annuity do I have? Is there an income benefit rider or death benefit rider? There’s much more to it than that, but that’s the first step to get ahead of the game.

The second thing that people will say is, “Oh, I have an annuity and I didn’t pay any fees”, and it turns out they have a fixed indexed annuity or a fixed annuity. It’s not that there’s no fees, it’s that the fees are included in the way the product is offered.

So you don’t have to write a check. There’s no deduction of fees from what you receive. It’s just baked in the cake. You don’t really see it, but the insurance company is making some money off of offering this to you. With these index annuities, the salesman will tell you  “Oh, this is a wonderful product you can earn”, and they’ll spout out a percentage number. For example, they’ll tell you, “This is a great product. When the market goes up, you could earn 9% return from this product”. And in your head, you’re thinking what 9% annually. But in reality, they’re saying you could get 9% for the total of the four year product. 9% for four years, that’s not anything special. That’s 2.25% per year. That’s hardly better than a savings account. Uh, and that’s, that’s, what’s possible. That’s the highest return you could possibly receive.

You could also get zero. What I don’t like about indexed annuities is that they will often get misquoted, just like the example above.

Annuities are tricky. If you already have an annuity and you don’t understand it, or you’re considering cashing out your annuities it’s best to have a consultation with a financial advisor. I’m a fiduciary, and I’d be happy to review your accounts and talk with you about options for your annuities.

If you would like you can get more information go to Maranantha.com or email at [email protected].

Disclosure: This is an educational program. I’m not giving you advice. Please, don’t take advice from me on this program as I don’t know your personal situation.

On this week’s episode, Mike explores the difficult conversation of death and personal finance.

To learn more go to Maranantha.com, and press the Start Here button.

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The Basics

This is all part of our 4 Money Lessons to get rich with personal finance knowledge. If you  are interested in applying the 4 lessons to your specific situation, download the lessons here.

I’d be happy to discuss this with you for your specific situation. We can have a free 15 minute call, you just click the Start Here button at Maranantha.com.

Music by Jay Man | OurMusicBox

Are you familiar with the “barbell strategy”? When you think about how you’re investing your money, maybe you have a 401k, an IRA, a retirement funds or investment account. How do you decide how much money is in cash or how much money is in something else, like stocks or in bonds? 

The Cost of Investment Management

We want to keep your expenses low. This includes the internal cost. We can help make sure that the internal costs of what we’re doing are low, so we’re not missing out on performance with various fees. As far as turnover, generating high taxes also eats away at your performance.

So, there are a number of things to think about when it comes to investing. One approach is the idea of looking at the whole market and saying, “Let’s diversify”, and be invested in the broader market. Within that, there are some areas  where we can target a higher expected return with some sectors, countries or companies. Within these we want to have overweight. 

Stocks

With stocks, it’s important to know the company size, what’s the relative price that it’s currently being offered at and how’s their profitability. These are the dimensions of expected returns and we can look to those three areas to understand stocks. 

Bonds

With bonds, we look at the maturity of the bond, and when we are going to get our money back, the credit quality of the bond, and it’s currency. These are the dimensions of expected return. If it’s a, not a domestic bond, but rather an international bond or an emerging market bond, sometimes you have to be sensitive to the currency it’s in. 

The Barbell Strategy

I think it’s so important to have what I’ll call the barbell strategy, sometimes called the dumbbell strategy. The barbell strategy attempts to answer these questions:

Personal finance is more personal than financial. It’s important to know where you are at, and to understand what money you need right now, for the next three months, six months, year, two years, and so on. You’ll find a comfort level with saying, “I need X dollars to be comfortable in my life” or having an emergency fund in your savings account. 

Long Term Investing

What should I be doing with this additional money that I have?  That’s when you can have a long term approach with your money and can invest it into the market, while being sensitive to the company size, relative price and profitability.

We can invest it, and if the market does return to new all time highs, you will be positioned well with that money, if you’re hedged you’re in a good position. 

I like the barbell strategy, and I’d be happy to discuss this with you for your specific situation. We can have a free 15 minute call, you just click the Start Here button at Maranantha.com.

Music by Jay Man | OurMusicBox

Taxes are low and they aren’t staying low is my thought!

Take a look at the history of taxes in the US!   (I’ve included a pdf). We’re at historic lows right now!

The idea for everyone to consider right now, get as much money as possible into ROTH IRA accounts.  Doing these Roth Conversions as they are an opportunity now that will provide very beneficial when taxes go UP.  Additionally, if there is another market decline, it’s going to provide a very good opportunity to do this ROTH conversion!

Filling your current bracket is the KEY!  I think it makes sense for older people too because they will pass on ROTH IRA that will give their heirs tax free money.

What are your thoughts? Email us: [email protected]

*Did you know social security wasn’t taxed before 1983? In 1984 they started taxing part of social security….  Kind of scary if you think about it… 

https://www.ssa.gov/history/taxationofbenefits.htm

Music by Jay Man | OurMusicBox

Website: www.our-music-box.com

YouTube: www.youtube.com/c/ourmusicbox

Here are 10 questions for you, would you care to share a story about money? Answer one or more of these questions in the comments (or click the link & record a voice mail to me.)

https://www.speakpipe.com/AllocationLink

For more information visit Maranantha.com, and click the Start Here button.

Thanks for Listening!

Music by Jay Man | OurMusicBox

Website: www.our-music-box.com

YouTube: www.youtube.com/c/ourmusicbox

Learn more online at maranantha.com click the Start Here Button.  

Music by Jay Man | OurMusicBox

Learn more online at maranantha.com, click the Start Here button. 

Music by Jay Man | OurMusicBox