Episode #28 – Confused By Annuities?

Why Annuities Seem Confusing

Hey, thanks for joining us on this podcast.

Before I forget, I’d love to hear from you. I get questions all the time from our listeners and viewers, but what I’d like you to do is send me a topic or two that you would like to hear more about on a future podcast.

Go ahead and send your suggestions to questions@wisemoneytools.com and in the subject line, put TOPIC.

Okay, great….look forward to hearing from you.

I know one topic I get asked a lot about is annuities.

There is a lot of noise out there, both pro and con regarding annuities.

I’ve always been of the mind that there is no such thing as the “perfect” investment. Everything we can invest or save in has its pros and cons.

What happens way too often is advisors just sell without regard to an investment being a good fit.

I can tell you, if an annuity isn’t right for your situation, it will be a lousy investment for you.

If it fits your situation, it can bring a lot of peace of mind to your finances.

So first off, it has to fit. I’m the first one that tells a client if it’s not a good fit. There is no need trying to pound a square peg in a round hole, it’s just going to be a bad experience.

I’d rather not do any business than bad business.

Okay, now that you know that any type of annuity needs to fit, have you ever looked at one?

Do they seem confusing? Well, they don’t have to be.

I’m going to give you the simplest way to understand annuities, and more if you answer just a few short questions, you’ll be able to determine if an annuity should be something to look at or to avoid.

You know the worst thing that you can ever do is get an investment or a product that doesn’t fit.

It’s like trying to pound in a nail. A hammer would be a useful tool, but somehow you ended up with a saw, and it’ just doesn’t do the trick.

There really is no such thing as the perfect investment. However, you can come close if the investment meets the majority of your objectives.

Annuities are no different. They can be the worst thing for some, and the best thing for others.

So, what is the basic premise an annuity?

There are two words Safety and Income.

That’s’ it, if you someday want income you can never outlive, it might be a fit.

If you are tired of playing the traffic on Wall Street, that may be a good fit too.

Now, three are basically three types of annuities.


Fixed Indexed

And Variable.

They are all annuities, they all have the option of generating income you can’t outlive,

but they differ in how the annuity company grows your money.

For instance, a fixed annuity is more like a bond or a CD. Each period gets a specified interest rate credited to your value. The period can be 1 year or as long as 10 years.

A variable annuity is invested in the market and you can go up and down based on the market returns.

In a variable annuity, you take all the risk and can lose money, whereas the fixed and the fixed indexed annuity you cannot lose money due to the market dropping.

An indexed annuity participates with a market index, such as the S&P 500, when it goes up, you go up, but you cannot lose money when the market goes down.

How do you know if one or any of the different annuities makes sense?

Here are a few considerations.

There are three types of investors which one are you?

There are Bulls who only see the market going up – then there are Bears who only see the market going down – and there are those who are a cross between a bull and bear who simply don’t know.

These crossbreeds are the most common.

Bulls think the markets are going up and there is money to be made. They don’t fear the market and aren’t worried about the ups and downs of the economy.

Bears have no confidence in the market, don’t think the market will ever go up again and just want some kind of return on their money that they don’t ever have to worry about.

Crossbreeds aren’t sure what’s going to happen. They aren’t necessarily bullish or bearish and all they really want to do is protect their nest egg.

They wouldn’t mind gaining when the markets do well, but they don’t want to lose money when the markets aren’t doing so well.

So, know if you look at the three types of annuities, and match them up with the type of investor you might be it would look like this.

Bulls use variable annuities because they see no downside in the markets. Bulls are hard to find these days by the way.

Bears like fixed annuities because they just want something each year and they don’t care how much it is, just something.

And cross-breeds seem to lean towards Indexed annuities.

As mentioned there are a lot more cross-breeds out there these days.

Why do you think that is?

Well, many of them have seen the market go up and down and have no idea if we are about to crash or keep going up.

They want to take some of their money off the table. They want to quit playing in traffic, yet they still want to grow their money.

What an indexed annuity does it lets you participate with the market gains or the upside, but you can’t lose when the market tanks.

It’s kind of like getting the best of both the bulls and the bears.

Okay, so those are the three types now let’s see if an annuity makes sense in the first place.

Here are a few questions. This isn’t scientific, but I’ve noticed over the years that if you answer yes to 6 or more of these questions, then an annuity might be worth exploring.

  1. Are you concerned about losing money?
  2. Would you rather have a return OF your money than a return ON your money?
  3. Will you be taking income from your savings or investments at some point?
  4. Is leaving money to your heirs without probate important to you?
  5. Do you want an underlying guarantee of your principal investment?
  6. Are you able to leave your money invested for the long term?
  7. Do you want to protect a spouse or other family member with guaranteed income after you pass?
  8. Do you want to set up a paycheck you can never outlive – then forget it and enjoy life?
  9. Do you want to grow your money, but have no downside risk?
  10. Can you wait till you’re at least 59 ½ before you begin taking income?

So, how’d it turn out for you?

If the answer to at least 6 of those question was yes, well then, now what?

Well here’s where you want an expert to help you through the annuity maze.

It doesn’t have to be confusing, but unfortunately, there are probably 200 or more different annuities.

Each company may have 5 to 10 different annuities, each one with a different objective.

Why so many?

It’s because some annuities are designed and are more efficient if you’re only interested in growing your money.

Others are better designed to maximize income for life.

And finally, others are better for maximizing the growth so you can pass your money on to the next generation or your spouse.

What I do is filter through the sea of annuities and find the 2 or 3 that will work best for your particular objectives and make the process very easy.

So, no need to be confused.

And again, an annuity is a horrible choice if it doesn’t fit. They aren’t for everyone, but if they do fit, they can bring a lot of peace of mind to a volatile economy.

First off, determine if an annuity even makes sense by reviewing those questions again, then you and I can work together to see if there might be one that fits your situation best.

It’s my objective to make the process easy and less confusing, but first, we don’t even know if it’s a good fit, so let’s start there.

You can also download my book called, “Prepping for Income, where you can learn even more about the how annuities work and the different designs.

Feel free to reach out and shoot me an email with any questions, and I’ll answer that just as quick as I can.


Finally, investing and annuities can be confusing, but it doesn’t have to be – you just need the right help as you go along.

Take care,




Leave a Reply

  • (will not be published)