Are annuities the best product since sliced bread … or a house of mirrors? Or could they be both? We’ll talk about it today with Mike Miller on Faith and Finance.
Are annuities the best product since sliced bread … or a house of mirrors? Or could they be both? We’ll talk about it today with Mike Miller on Faith and Finance.
Mike Miller is a Partner and Senior Private Wealth Advisor at the South Carolina office of Ronald Blue Trust. He’s also a certified financial planner and a Certified Kingdom Advisor. Mike Miller is a Certified Kingdom Advisor. If you want to learn even more about annuities, you can listen to his two-part podcast on the topic at TalkingMoneyRadio.com.
At Faith and Finance, we’re generally not fans of annuities. But let’s take a closer look. First, what is the main problem with any investment that guarantees returns, such as annuities?
Miller says they’re always a tradeoff. Guarantees come with a cost. Typically, the lower the risk, the lower the return.
WHAT DOES THE BIBLE SAY?
You won’t find the word “annuities'' in the Bible, but there is a biblical principle to guide us on this topic.
Miller talks about the Parable of the Talents found in Matthew 25. One of the servants buried his talent in the ground. The master asked why he did that. The servant said he was afraid, and the master was displeased.
Miller says all too often, annuities are marketed and purchased based on fear.
WHAT TO LOOK OUT FOR
If a salesperson is ONLY selling annuities, rather than a full suite of investment options, that’s a potential problem. If he or she only has a square peg to sell, they’ll always try to sell a square peg, regardless of whether the hole is a square, a circle, or a triangle.
Also, if an annuity salesperson is trying to get you to put a large percentage of your money into an annuity? If so, watch out! It’s always a good idea to diversify.
And do you feel like someone is trying to sell it because it's in your best interest? … or because they’re trying to win a contest? Listen to those spirit checks if you feel like they’re not acting in your best interest.
There are three different types of annuities: Fixed, indexed, and variable.
Fixed annuities do have some advantages in an era of elevated interest rates. You usually get a higher guarantee than in other types of annuities, at least for a period of time.
Variable annuities have a higher potential upside, but a higher potential downside as well.
Whatever the annuity, it always makes your money less liquid and available. And if you’re going to leave that money alone for a long period of time, why not invest in the things the insurance companies are investing in (the market)? Just take a long-term approach and diversify properly.
There are some limited situations in which an annuity makes sense. That could be a situation in which you’ve exhausted other investment options. Seek out a kingdom adviser if you want to evaluate annuities for your needs.
On this program, Rob also answers listener questions:
What is the best option to consolidate debt?
How can a married couple get out of a living paycheck-to-paycheck situation?
Remember, you can call in to ask your questions most days at (800) 525-7000. Also, visit our website at FaithFi.com where you can join the FaithFi Community, and give as we expand our outreach.
