Why Annuities, Why Financial Planners

Today, I want to discuss the financial problems in our community. I am on a personal crusade to help solve these issues. All I ask is that you listen, see if the concepts make sense and then if they are important enough, maybe you will want to join the crusade. I know I cannot do it alone and I need your help to really make an impact!

ANNUITIES

Many people look at an annuity and really don't know what an annuity is useful for. An annuity provides a viable way to get out of an expensive whole life insurance policy without being hit by a huge tax liability. Most third party advocates state that insurance and investments should be kept separate. An annuity provides a way to break the golden handcuffs of a whole life insurance policy, when the owner decides to separate the insurance and investment. There are also huge tax advantages as far as determining the cost basis in an annuity if someone had been ripped off by a whole life insurance policy for seven to ten years.

Other reasons, less common depend on the investor. For instance, a conservative investor may used a fixed annuity to guarantee income based on the financial stability of an insurance company. This was common historically when the stability of banks was questioned.

Another reason, would be to apply 10-25% of retirement money to hedge against longevity risk, which is the risk that you will outlive your money. Be careful not to dump your entire retirement money into an annuity contract, because unexpected events may occur in the future.

FINANCIAL PLANNERS

First off, let me say, I wish everyone would spend the time necessary to learn about their own finances. I wish they would read Suze Orman's books and take Dave Ramsey's advice. However, I know that no matter how important I think it is, only 15% of the population will ever learn how to manage their money wisely.

From these 15%, most of them will not even beat the S&P 500 index. Lipper and Dalbar did a 45 year study that showed that the average investor made 4% while the S&P 500 made 11%. This means that many of these 15% would gain more profit by using a financial planner. What's great is that these 15% will know what their financial planner is doing. This is extremely important. Those who do their research on dentists and ask the right questions, tend to get better care. It doesn't mean they start drilling on their own teeth!

Of the other 85%, some will start plans, most of which have not ever sat down to actually plan. Some will open their 401(k) plan at work and pick funds based on a dice roll. These 85% would definitely benefit from having a financial planner to encourage them to plan and start saving for retirment. Most people would also benefit from keeping their retirement plan separate from work, where they don't have to rollover every time they switch jobs.

Before people used to get matching in their 401(k) plans. However, over time as people became accustomed to naturally using these plans, the companies stopped matching. This is because the companies had little to no incentive to match. If your company does match, I would definitely utilize that savings.

Dedicated to Flo Scollan.