Then we drill down into their specific desires, in most cases:
- Protection of their investment principal- they do not want any backsliding in their portfolio
- Inflation protection- a minimum rate of return at least adequate to keep up with inflation so their purchasing power isn't eroded over time. They want to participate in the upside of the market but not in the downside
- Some tax advantages- it adds insult to injury to earn half a percent on a CD and then have to pay income taxes on it to boot.
- Keeping their Social Security benefits nontaxable.
- Some income guarantees- if they've attended one of my retirement classes they've learned that outliving one's income is one of the three greatest retirement risks. They would like an income they cannot outlive.
- Liquidity if a crisis occurs, like having to go into a nursing home or the death of a spouse.
Then I have to tell them that they've taken off the table the best tools I have for accomplishing all those goals: annuities. That is, the right annuities used in the right way with the right amount of their funds.
Take for example Social Security. Social Security is a stream of payments, i.e., an annuity. And a darn good one at that, if it is applied for optimally. Everyone who is eligible for this stream of payments has "bought" it with their payroll taxes. (In fact, some people are eligible for it who have never even paid so much as a cent for it: nonworking spouses.) I have yet to meet anyone who was "principled" enough to decline Social Security because it is an annuity.