Annuity Income May Contain a Hidden Surprise

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Jim Lorenzen, CFP®, AIF®
Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Annuity income may feel secure; but, is it really?   Once you realize that money is worth only what it can purchase, the effects of inflation become woefully clear.

Suppose your annuity will provide you with $50,000 in annual income through retirement.  It sounds good, but does it provide for cost-of-living increases?  If not, those payments will likely be worth less each year.  Assuming a 3% inflation rate, your $50,000 will represent only about $48,500 of purchasing power in today’s dollars in the second year.  In the tenth year, your purchasing power would be around $37,200 in today’s dollars; and, in the 20th year, it would be around $27,700!

The pattern is clear:  Your purchasing power would be declining each year.  If you purchased the annuity in order to preserve lifestyle security, you may be very disappointed.

Remember, there are different kinds of annuities:

  • Immediate
  • Deferred
  • Indexed
  • Variable

All have their own bells & whistles and all have their own set of characteristics and costs, sometimes not so obvious.   And, the chances are excellent you’re paying extra for any add-on benefits that may appear free.  Often, you may be able to replicate those same benefits with less cost through some basic and prudent financial planning.    Just remember NOTHING is ever the answer for ALL your money.  Diversification isn’t about money; it’s about risk.  And, there are more risks than one you should be considering.   Also remember….

When something sounds too good to be true… well, you know the rest.  If you’d like to learn more about income annuities, I’ve prepared an Income Annuity Primer for you.  It’s free when you subscribe to IFG Insights.  If you’re not happy with Insights you can always cancel; but, I think you’ll like both the primer and the ezine.  You can get the primer here.

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Enjoy!

Jim

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RESOURCES:

IFG Report:  The Hidden Risk No One Talks About (registration required)

A Financial Conversation Checklist (does not require registration)

Subscribe to IFG’s Ezine:  IFG Insights   https://tinyurl.com/IFGInsights

The IFG Website

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Interested in becoming an IFG client?  Why play phone tag?  Schedule your 15-minute introductory phone call!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Jim's picture
Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

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