Carlton Financial Group - Insurance, IRAs, College Planning and more

With all of the financial market mess everyone has had to endure, is there any single solution that will be provided to address the financial concerns that most people are facing? Unfortunately, no, everyone's situation is different, however, there are financial strategies and products that can assist you with the correct vehicle to navigate through these murky waters. If you are concerned about your investments and just not sure which direction to look, you may want to consider an annuity.

1. Safety

Without question, safety is the top priority for everyone when they are saving their money. But safety means different things to different people. To some people, safety means putting money with their bank while complying with FDIC limits. To others, it means having money diversified across a variety of stocks and mutual funds or even picking their own stocks after they have researched the underlying companies; and to others, it is entrusting their money with a financial professional. Regardless of your definition or safety, we can all agree that everyone expects to earn a nice rate of return while protecting principle.

Annuities offer three different levels of safety:

    •    By contract, a fixed annuity guarantees that your principal is protected and that you can get it back again. There may be a penalty for early withdrawal, but as the annuity owner, you can control your withdrawals. So, there is no circumstance that can cause you to lose money in a fixed annuity.

    •    Even if your insurance company fails, the value of your annuity (up to $100,000, or more in many states) is guaranteed by your state insurance guaranty fund. In other words, your annuity is backed by a government guarantee similar to those that protect your bank deposits.

    •    If you have a problem with the insurance company that issued your annuity and you want to get a regulator involved, the regulator is located in your home state no matter where that insurance company is located. Here, annuities even beat money in the bank. Since most banks are regulated at the federal level, your bank's regulator may be in Washington, D.C.

2. Growth

Once you are assured that your money is safe, the next objective is to have that money grow as quickly as possible. A fixed annuity will guarantee a specific rate of return, regardless of market fluctuations!

Fortunately, insurance companies are not ignorant of that fact. Many carriers offer annuities with very attractive interest rates or the option to purchase an equity index annuity which can provide the opportunity to earn a higher rate of return (I will cover indexed annuities in another post).

3. Tax advantages

Again, everyone want their money to grow as quickly as possible, and besides having a great return, why not maximize on your tax advantages in the mean time.  Annuities cannot claim to have the best tax advantage possible. However, neither can stocks, stock mutual funds, even 401(k)s and IRAs. Please consult with your CPA in regards how an the purchase of an annuity will effect you.

4. Liquidity

Most people recognize that liquidity, safety and growth do not co-exist very well. For example, with a checking account, you get excellent safety and total liquidity, but you lose growth. With the stock market and mutual funds, you get good liquidity and hopefully a good rate of growth, but you are sacrificing safety. So, if an annuity is going to give you bulletproof safety and a good rate of growth, there needs to be some sacrifice in liquidity, right? The good news is that most annuity products build in enough liquidity to make many customers comfortable. Even retirees who need to withdraw money every year to supplement their incomes can find annuities that allow them to take such withdrawals (based on the guidelines of the annuity contract).

Please feel free to leave any comments or contact me with any questions.