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Annuity Choices Aren’t As Simple As They Used To Be

When annuities were first introduced back in Roman times, there was one kind and it was very simple.  The single premium immediate annuity (SPIA) paid you lifetime income after a one time payment to an insurance company.  There are now tons of different annuity products and options from which to choose.  New annuities offer benefits that you couldn’t get before they were introduced, but the simplicity is lost with the added choices.  In Insurance News Net’s article, “Annuities: More Choice Equals Less Simplicity,” Cyril Tuohy discussed the lesson shared by financial advisor Carrie Turcotte.  She says that you need to make sure that you do not confuse choice with simplicity.  Even financial advisors struggle sometimes with all of the different types of annuities available.  It takes work to sift through and determine what products may offer value to what consumers.

Back in the day, ice cream shops only offered three flavors of ice cream and the Ford Model T only came in one color.  There is something to be said for the simplicity that comes with one or just a few options of something.  But we do need a balance because not everyone likes chocolate, vanilla or strawberry ice cream and some people preferred a Model T that wasn’t black.  SPIA’s are easy for just about everyone to understand and they don’t require much education for advisors or consumers.  As Americans, we tend to try and make everything bigger and better.  That’s one of the reasons that all of the additional annuity options were invented.  Now we have fixed rate immediate and deferred annuities, indexed annuities, deferred income annuities and many more types.  It takes more work for advisors to ensure that they offer clients the right annuity solutions, but reputable advisors will continue their education on these additional products.

Another reason for all of the additional annuity options is a demand from Baby Boomers.  This large generation is retiring in droves and they are searching for guaranteed lifetime income to make their money last as long as they do.  Annuities used to be marketed to older, affluent consumers who were already retired.  They are now reaching much younger buyers who have to secure income from their defined contribution plans because they don’t have a pension.  The financial advisors interviewed for the article believe that any ethical advisor should research annuities and make sure that their clients understand the guaranteed income benefits they offer, even if they don’t end up buying one.  Many consumers who try to research annuities by themselves end up being too confused and avoiding the products altogether.  Even though they can be more complex now than they used to be, the benefits offered by annuity products are plentiful and they can be a good tool to use within your financial plan.  A representative from the LIMRA Secure Retirement Institute pointed out that most people were solely concerned with accumulating wealth before the financial crisis of 2008.  Now it is more important to most of those they surveyed that they find a source of guaranteed income in retirement.  Annuities can be that source of guaranteed income to carry you financially through retirement.

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