Annuities Aren’t Always the Right Fit
Annuities can serve an important purpose in the right financial plan. They can provide guaranteed income, offer certain protections, and help address specific retirement concerns.
However, that doesn’t mean everyone needs one. In fact, sometimes the biggest issue isn’t whether an annuity is a good product. It’s whether someone needed an annuity in the first place.
When the right product becomes the wrong fit
Consider a client who purchased an annuity several years ago. At the time, he was working with a financial company that offered a limited selection of products. In fact, an annuity was essentially the solution they had available for his situation. So, that’s what they recommended.
The client didn’t necessarily need the guarantees or structure that came with the annuity. Instead, the company presented it as though it was an important part of his financial future. Naturally, he trusted the professionals he was working with and moved forward.
Years later, the annuity is approaching its renewal period. Now, we’re taking a closer look at the policy. And that’s when the bigger question comes up: Does he actually need this? Upon review, renewing the annuity didn’t make sense for his current situation. And honestly, it didn’t appear to make sense for his previous situation, either.
Sometimes, Your Situation Doesn’t Need an Annuity
This doesn’t mean the original annuity was necessarily a “bad” product. Rather, it may simply have been the wrong product for that particular situation. That’s an important distinction.
Annuities can make sense for some people. For others, they may add restrictions, costs, or complexity without providing a benefit that the investor actually needs. Therefore, the question shouldn’t be, “Are annuities good or bad?“
Instead, ask: “Does this annuity make sense for me?”
Even if the annuity was appropriate when you first purchased it, it doesn’t mean it still fits today. Over time, your financial goals change. This often means your financial plan should change, too.
renewal time is the perfect time to reevaluate
Fortunately, an annuity renewal gives you a natural opportunity to stop and review the decision. Rather than automatically renewing the policy, take a step back. Contact your advisor so they can help you look at the current benefits. Take the time to review the costs, guarantees, investment options, restrictions, and renewal provisions. Then compare those features with your current financial goals.
Having this discussion with your advisor can help highlight different aspects of your life that would decide whether or not an annuity is necessary. Maybe your income has changed. Maybe you’ve accumulated additional investments. Perhaps retirement is closer. Or, as in this client’s case, you may simply realize that the product wasn’t necessary in the first place.
No matter the reason, working through it with your advisor is better than letting it automatically renew, leaving you stuck with it for another handful of years.
financial products should be reviewed – not forgotten
Once you purchase a financial product, it’s easy to put it in a mental drawer and forget about it. However, your financial plan doesn’t stay in one place. Your life, goals, and income changes over time. Not to mention changes in the markets and tax laws each year. Eventually, products reach renewal dates, opening the door to other possibilities.
That’s why periodic reviews matter. You may learn that annuities aren’t always appropriate simply because someone recommended one years ago. Before renewing, make sure the policy still serves a purpose in your overall financial plan.
Sometimes the right decision is to keep it. Other times, right decision is to make a change. And occasionally, you may discover that you never needed it in the first place.
If you have an annuity approaching renewal and aren’t sure whether it still makes sense for you, give us a shout. We’d be happy to help you review the policy and see how it fits into your current financial picture.