Annuities are Awful Or the 5 Reasons You Need an Annuity?

Psst…Buddy…what’s it gonna take to put you into an annuity today?

Being that most Americans are both unfamiliar with annuities as well as been told that they are “no good”…it would probably take quite an effort to get you to embrace an annuity. Financial pundits have been very vocal on why they think annuities are a waste of time, but there is a wealth of information that points to the contrary, too much in fact to be overlooked. You may be doing yourself a future financial disservice by buying into the advice of these pundits.

Hopefully I have your attention. How about 5 quick and simple reasons that show why you may want to rethink your bias against annuities:

-We think in terms of our mandatory costs in retirement…being shelter and food, but to this we must add healthcare. You must have healthcare in place to collect Social Security (an expense less than 8% of Americans have planned for), and an average couple retiring today can expect around $6100 in Medicare premiums a year. Inflation also runs much higher in medical expenses than other area fyi. Let’s multiply that by 20 years and see what it says…that is $122,000 just in premiums, not including prescriptions, copays, etc. ***Medicare does not pay for long term/ nursing home care.

Just as you have guaranteed costs in retirement…you will need guaranteed income to offset those costs. I firmly believe that your Social Security benefits won’t even come close to what we have been told they will be. An annuity fits this need very well.

-The more you have the more premium you pay, and the less Social Security you receive. Medicare works with the IRS and Social Security to calculate the mean average retirees’ income. Currently only the higher income 5% to 11% of retirees are affected via increased Medicare premiums/ lessened Social Security benefits. Legislation is currently being considered that could affect anywhere from 11% to 46% in the future. Wouldn’t a guaranteed income from an annuity be beneficial here?

-The determination of your “income” is (which affects what you pay for Medicare and receive from Social Security) is based on your wages, capital gains, interest rental income, pension income, and withdrawals from your qualified accounts (401k, IRA, SEP, Keogh, etc). Things that are NOT considered income (exclusions) are life insurance, Roth IRA’s, home equity, and non-qualified fixed annuities.

-Long Term Care…has been thought of as mostly a way to protect assets for your heirs but now, is being also considered as just plain access to care. In 2011 there were approximately 300,000 unoccupied beds in certified nursing facilities in the US. Compare this to the 76 million baby boomers that the US Census tells us are retiring at 10,000 per day through 2029. Close to 70% will need long term care, with 25% expected to require a stay of 3 years or longer. Now we look at the national average for a semi-private room in a nursing facility to be $77,380/ annually and it is easy to see a problem. Also, remember as you liquidate your assets to perhaps pay this expense, any gains will be taxed. A guaranteed income from an annuity would help greatly here.

-Now that we have looked at health and long term care costs…we must also be aware that any unpaid costs can and will be passed on to your family. 29 states have in place filial laws that impose responsibility for payment on 3rd parties for incurred debts…which is often adult children (not always though). I would like to think my children (and hopefully grandchildren) will remember me fondly, and not by agonizing over my nursing home bills.

These are 5 simple, quick rules for evaluating if an annuity belongs in your retirement plan. These valuable tools can provide guaranteed income that doesn’t count against you, help control health costs, possibly lower your tax hit, and save a greater portion of your Social Security benefit. I am happy to help you find one that matches your needs best. I can be reached at cmoye@pegplanning.com

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