I have always been fascinated with History....
So much so that I majored in Ancient & Medieval European History when I was in college and wrote my thesis on the fall of the Western Roman Empire.
While there are several missteps that that we could point to when analyzing the Romans, one thing they certainly understood was the value of income protection.
Many Historians credit the Romans with developing the idea that would give birth to the first annuity (although the concept likely existed for hundreds of Years before the Roman Empire began). Under a program called “annua,” lifetime income payments were offered to retiring citizens in exchange for a lump sum premium. This structure most closely resembles the single premium immediate annuities we see today (SPIA).
This is why annuities were designed and while they now have the ability to serve many purposes, the core function is ultimately to provide an income stream for either a specified period of time, a certain amount or for the remainder of your life.
"But Jamie, aren't annuities bad?" That is a generalization that cannot simply be answered with a "yes" or "no." Are you referring to immediate or deferred annuities? Fixed or variable? What are the available income/settlement options available? What is the fee structure (if any), early withdrawal charge, etc.? There are many considerations that need to be analyzed, explained and discussed before even suggesting the suitability of an annuity.
I could come to the conclusion that steak is terrible but if my only exposure came from the $5.99 London Broil served up at the local Diner, I'm not sure that would be a reasonable assessment.
In the 25 Years I have been working in the insurance industry, experience has shown me that although annuities can provide extraordinary benefits in the appropriate situation, they have become a widely misunderstood financial instrument. I’ll come back to that shortly, but first please indulge me by learning a small part of my personal story……
When I was a child, I lived in the north of England for three Years after my Father was given a new assignment by his employer. I fondly remember spending hours in the beautiful countryside, walking along Hadrian’s Wall while pretending to be a Roman soldier fighting to protect Britain from hostile attacks. My interest in history has stayed with me into my adult life and although I don’t have much time for daydreaming these days, I still think about being able to go back in time as “a fly on the wall.”
Throughout my career, I have delivered hundreds of seminars on issues pertaining to retirement income planning, usually while dressed in a suit and tie. You know the deal….I buy you a meal and as a courtesy, you tolerate my information session. So, I now picture myself in a toga, “pitching” this concept at a dinner seminar while others tune me out as they sample the free Roman buffet!
Over the Years, times have changed, demographics have changed, the way annuities are designed, utilized and often marketed have changed but the primary concept remains the same. Annuities are not always suitable but they do have the unique ability to compliment other available income sources and help ensure that your income will last as long as you need it. As with any other financial vehicle, it only makes sense to the extent that it is designed to carry you to your desired destination. You can cut the grass with a pair of scissors, but I wouldn't recommend it.
Today, employer sponsored pensions are not as available as they once were, Social Security may only cover a portion of the income needed in retirement, healthcare costs can be substantial and as time goes by many individuals will need to plan on spending more years in retirement than their parents and grandparents did. These risks (among others) mean that many of us are becoming increasingly more dependent upon our own savings to generate the income we will need to make it last for the rest of our days.
Annuities can be confusing but they don’t have to be. I have been providing annuity education for many years, I have a deep understanding of situations where they may be suitable, where they may not and how they can be utilized to compliment a retirement planning strategy. There is no "one size fits all" when it comes to preparing for retirement and annuities are not appropriate for everyone. Each individual has their own unique set of circumstances and any suggested plan of action should be thoroughly evaluated and customized to meet their needs.
As with any other financial solution you may be offered, please make sure you understand and are comfortable before allocating your hard-earned assets, after consultation with an appropriately licensed professional. I would welcome the opportunity to answer any questions that you may have.
Please note that the ideas herein are neither company nor product specific. These are concepts shown to give you general information of the benefits and limitations of products and strategies and are not designed to be a recommendation to buy any specific financial product or service. Products change and such product concepts may not be suitable for your needs or available in your state.
James D. Orr does not offer tax planning or investment advice. As a licensed insurance agent/agency offering fixed insurance and annuity products, James D. Orr and AnnuiLife Wealth Preservation are regulated by the Ohio Department of Insurance.
Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurance company and are not guaranteed by any bank or the FDIC.
Some annuities may have a lifetime income guarantee as part of the base policy; others may have optional riders available that provide this benefit. Optional riders may be available with a charge.
All withdrawals are subject to ordinary income tax, and if taken before age 59-1/2 may be subject to an additional 10% federal tax penalty