Why an Annuity is just part of your pursuit for Financial Happiness A neighbor suggested that our family should get a Chrysler Town and Country because his family loves theirs.
"Besides," he says, "they get great gas mileage, seat 7 comfortably with zoned climate control, and have DVD players equipped with headphones to occupy our kids".
Hey, he must be on to something...
right? Recently, I had several attendees at our financial workshop come up after the session and ask, "My friend told me I should buy an Indexed Annuity, what do you think?" or they haphazardly quip, "I would never put my money into a Fixed Rate Annuity, even though my CPA suggested I look into one.
" Or my favorite, "all of my co-workers are getting into this Annuity, where can I get me one of those?" as he's pointing to a pamphlet of the 10 best reasons to buy an annuity.
Now if you query on the internet, "Should I buy a Fixed Annuity?" or "What is an Indexed Annuity?" or "Is an annuity right for me?" you will be inundated with articles from all over the globe telling you the virtues and pitfalls of owning or 'investing' in such a product.
No doubt, the pro-annuity articles will extol the benefits of safety, growth and tax savings while the anti-annuity articles will highlight the exorbitant fees, usurious surrender charges and the undefinable complexities of these products.
So, who is right? We believe your guidance actually rests in the questions rather than the answers themselves, thus the better the questions (from both sides of the table) the easier to identify the proper course of action.
Now, we know that most of our friends mean well, but how do they know what I need for my family? How do I know that they asked all of the right questions when it came down to their well-being? Do their values and principles match ours? Or maybe they didn't ask enough of the right questions.
Our neighbor recommended a minivan and at first glance, it sounded like a logical choice.
His assertion for this type of vehicle may be good enough to serve our family's needs, but I don't want any buyer's remorse.
For our approach we needed to first establish the following: 1.
To ask a lot of questions...
from both sides of the table! 2.
Discuss, in detail, the ideal outcome...
this becomes 'the vision' 3.
Determine if the guidance is a 'fit'...
Is the advisor capable of being objective? 4.
Determine if the guidance is 'competent'...
Does the advisor possess unique knowledge, skillset or experience to solve our challenges? Are you considering if an Annuity is right for you? Utilizing a sequence of four meetings with your financial advisor to identify your immediate and long term needs and objectives, you will prioritize what is going well and what needs to change.
With the help of an impartial financial advisor, you will be able to stress test your current allocation of resources compared to other recommended options producing a sound blended strategy that should deliver your expected return on investment.
But, if you skip over this decision making process and only consider the features of an up-front bonus or a fantastic interest rate or the fact you just can't lose your money while capturing the up side of the market, you could be doing yourself a disservice.
By asking the right questions, you will be able to uncover how the four pillars of money; time, opportunity, risk and appreciation fits into your goals and objectives.
Bottom line is, if you don't take the time to ask the hard, deep questions you may be setting yourself up for unforeseen financial stress.
Just a few short years ago, a friend of mine built a gorgeous lakefront home for his family.
He spent years in the planning and development phase, finding the right lot in the right area with a panoramic view of his favorite lake.
He had plans drawn up by a local architect and then interviewed several builders until he was satisfied with going forward.
The house was built without a hitch and it turned out magnificent.
He and his family were truly happy until he gradually started to notice that there was a slight shift to the house.
It wasn't noticeable at first but over time it only got worse.
In fact, it was to the point where he could place a bowling ball at one corner of a room and then watch it roll to the other.
Upon investigation, he found out that the geological survey done before they poured the foundation only went 18' deep (per township code).
Now when they had another survey done, they dug a little deeper to find out had they used that measurement, the lot would have been tagged as unsuitable for building.
My friend was so unhappy.
After all of the questions he thought he should ask, there was one that simply slipped away.
If only there was a way to have stress tested the area before this catastrophic mistake! His story has left such an impression on our family that when it comes to making 'big' decisions, we have incorporated a formal system used to clearly understand our needs and expectations.
We will use this process to identify what we like or don't like about our current situation, explore alternatives and then test those options using our current strategy as a benchmark.
"Didn't think to ask", got my friend into trouble when building his home.
Can't really blame him, he spent an enormous amount of time researching and doing his homework but when it comes down to it, sometimes it is just better to find an impartial advisor who has been there, done that, for several thousand other families trying to build a foundation and legacy.
In solidifying a plan to buy a new car, my wife and I decided that it would take no less than 4 meetings with our salesman to discover if it was in our best interest to replace our current vehicle with something else and if so, what would be the most appropriate choice understanding that even with all of this due diligence, this decision has the possibility of not meeting our expectations.
Within this sequence of meetings to uncover the needs, expectations and transparency for you and your advisor, you will get to know how each other will act and re-act when the strategy goes as planned or below expectations.
They may seem obvious, but it is crucial to take the time to come to an agreement with an advisor who understands how, when and why these precious assets need to perform in a particular manner.
How much money can I make? Is it Safe? It sounds too good to be true, what am I missing? How much is this going to cost me? These are all valuable questions to ask when thinking about investing into an annuity.
Other good questions when deciding on a source to make recommendations to help you put a plan in place; how long have you been in business? Any lawsuits or disgruntled clients? Do you have all of the necessary accreditations, licenses and certificates to guide our family legally and ethically? Maybe a better question to ask when interviewing a financial advisor, "If our plan is performing below our agreed upon expectations, what is our strategy then and how will you communicate it to us?" As far as my neighbor, politely letting me know I should buy a minivan, what he didn't know is that my wife and I already started the process of looking for a new car.
We began with prioritizing a list of dissatisfactions over our current vehicle and what we wanted to change to see if it even warranted a new one.
So, are you that dissatisfied with your current holdings that warrants a change in your asset allocation? Have your expectations changed? If so, is it your circumstances that have changed or maybe you see a change in the marketplace? These are important questions to understand your purpose, objectives and goals.
Considering buying a new car, my wife and I met with our trusted salesman to see what options that could satisfy our requirements, both immediate and long term.
A key element to our successful meeting is we came prepared knowing our needs, expectations, but most importantly, anticipating changes in our family dynamics over the time period we would have this vehicle.
Our mindset going into the meeting is 'the better the questions, the more obvious the answers'.
Sure, tangible features and suitable benefits are important but it's far more important to stick to a decision making strategy for entering and exiting an agreement.
You would be doing you and your family a great service if you came equally prepared when meeting with your financial planner to discuss if an annuity is right for you.
During our initial meeting, our expectations are simply to be pointed in the right direction.
Identify what we clearly are dissatisfied with in our current vehicle and what is needed to enhance our situation.
We would be looking to discover what is working, if it can be improved and what are the best and worst case scenarios.
To answer our first question in putting together our entrance and exit strategy, how do we measure if it is working to our needs but most importantly how will you help us understand what is an acceptable range above and below our expectations? What do we do if our implemented plan underperforms that range? A key element in any plan is projecting future income.
The same decision making process is implemented in your financial advisory relationship, or at least, it should be.
During the second meeting, where the "Rubber Hits the Road," we will stress test our current plan through a sophisticated computer program specifically built for this type of forecasting to show the probability of desired or ideal outcome.
This will also improve our consistency of results by closing the gap between our average test results and the best case scenarios.
There should be a comparison of your financial plan by adding or removing 'guaranteed lifetime income' provisions to determine the optimal allocation.
Then review to understand all costs and fees associated with every plan version including the current portfolio.
We will have a little fun by adding other ideas and options to formally see how things could work out for us in the immediate, near and long term future.
This eye-opening meeting with your financial advisor will prove invaluable when constructing a financial plan that will be able to weather all sorts of storms.
A fully guaranteed approach will be the platform for our third meeting where we can identify aspects of each option while minimizing risk.
We will weigh the advantages and disadvantages of all the plans to choose the one plan that fits best.
What we have found helpful when there are so many options is to eliminate ideas from the obvious down to the negligible that just don't fit into our overall objectives.
When highlighting what is guaranteed and what is not in putting together your comprehensive financial plan will be the foundation of your risk tolerance and total portfolio performance expectations.
One of the choices my wife and I needed to discard was a large SUV, only because we have children that will be learning to drive in the next couple of years and we believed it would be too cumbersome for a new driver to maneuver around town.
Time, method and risk are paramount in the decision making process.
Of course, the higher the perceived risk, the longer the time and the more formal the method followed to make a decision.
A decision usually follows the same protocol, it starts with the decision that there needs to be a change, then what is the best solution for that change and finally when that change needs to happen.
So, the fourth and final meeting is the implementation meeting where the "What" and "When" are agreed upon.
You will also be agreeing with your financial advisor on how often you need to meet to review real time performance measured against expectations as well as the current range of worst and best case scenarios.
One of the basic concerns in deliberating over an annuity, is the insurance company.
Who are they? What rating do they have? How do I know when the time comes they will be able to provide me with lifetime income? These are all legitimate questions that need to be answered for your consideration.
We also know insurance companies are not philanthropic organizations so maybe a better question to ask is, "How do they realistically profit from issuing these products?" By understanding where the other side is coming from, aka 'What's In It for Them', the more comfortable we can be buying their product and services.
It is a credence we call, "Know Where Their Heart Is.
" That is probably why you will want to spend a little more time with your financial advisor...
plenty of them look good on paper, but do you know where their heart is? When understanding if any Annuity would be the right choice for your objectives, it is our belief that you sit down with an impartial financial advisor who will take the time to understand your needs for both the immediate and long term future and take you through a formal process so you will make a well-informed, empowered decision.
By prioritizing your needs, asking the right questions, especially the questions no one thought to ask, you will eliminate most of your options so you can concentrate and test the products that will perform exactly as expected.
Remember, a goals without a plan is just a dream! So, here's a question for you.
Regarding a 'big' decision you have made in the past where the outcome was less than favorable, could you have averted disaster by asking better questions during the decision making process? Or maybe you didn't know just how great you had it providing you didn't know all of the facts because you didn't ask enough questions? If you want to assure yourself success, take the necessary time to write out your questions ahead of time for your ideal outcome, your current plan, and if there are any gaps.
In case you were wondering, we ended up buying the Town and Country, but not because our neighbor told us to.
You see, my wife runs a business where she has to sometimes make deliveries and having the capacity to stow the seats when needed and still have the ability to transport our entire family at any given time was the need that was best filled now and in the future.
An annuity may be the right choice after all, but since this is a long term investment, doesn't it deserve the right approach?