Self  Insurance

Problem:

You inherited $300,000 from your rich uncle

You just won $10,000,000 in the lottery

Your pension plan ended and you got $50,000

Retirement! You now have $350,000 to manage

A life insurance policy just paid you $750,000 

CD rates went from 5% to 3.1% this year

Your mutual funds lost 30% of your principal

Most of these sound like  problems we would love to have, but believe it or not,  knowing  what to do with large sums of money, for the grownups among us, is a major issue.   

 Solution:   Annuities!

The main question people have about annuities : What in the Sam tarnation IS an annuity??  

Answer: An annuity is a contract between you and an insurance company.  Think of it like a life insurance policy that you don't have to die for.

You determine the amount and timing of future payments by how much you contribute during the accumulation  period, and your payout selections when the accumulated value is annuitized.  (I know, a lot of new terms here, but stay with me - it gets worse.)

Example: You pay a one time premium of $100,000, and 5 years later you begin to receive income of $800/month that will continue for as long as you live (one of many payout options).

Or: You pay an initial premium of $20,000, the company deposits a 10% bonus ($2,000) in your account, and you start earning tax deferred interest on the entire amount.  Any payments during the remaining 5 year accumulation period (remember that term?) earn the same 10% bonus, and start to bear interest at the contract rate.   

Why an insurance company?

Think about it  - who do you trust to pay you several hundred thousand dollars if your house burns down?  Who pays million dollar life insurance claims without batting an eyeball?  These companies manage $billions - with a "B" - and stake their entire future on the ability to pay claims. 

Your money cannot be in a safer place.

 Beware of the predators!

Actually they are just trying to make a living like us, but some agents sell variable annuities, while Self Insurance offers only fixed or indexed products. The big difference is that with a variable annuity you can lose some, or large amounts of your principal, and you will generally pay fees to a manager, even if your balance is dropping like a rock.  Any horror stories may have heard about annuities probably involved a variable policy.

With a fixed annuity, your principal is safe, and your annual returns are guaranteed under the worst of conditions.   Babe Ruth is famous for (among other things) thriving during the Great Depression because he had put much of his money into annuities.  Equity indexed annuities allow you to share in the gains of the stock market, while assuring that your principal balance will never decline. 

Should I put all of my money into annuties?  Not likely.  Of course, we would love to place all of that lotto windfall for you, but the truth is, you need to diversify and maintain some liquid assets (not the kind you chug).  Some of your nest egg may belong in a mutual fund, your favorite stocks or in a variable annuity.  But for the part that you want to keep safe and secure, you should strongly consider fixed or indexed annuities.

How much needs to be "safe and secure"?

If anyone gives you a simple answer to this one, run away screaming, or just kick them out of your house!  Give us a chance to get to know you and look at your unique situation and priorities; then we can make some recommendations.  In the end those decisions will be yours, but we can help you make some intelligent choices.

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