The financial services industry in general is one that comes with tons of regulation.  And rightfully so.  When it comes to advising people on how they invest their money or plan for their future, it should be taken very seriously.  To be a financial advisor, planner, or investment advisor, an individual must have the proper licenses.  However, when it comes to fixed annuities, there is a low barrier of entry and just about anyone can sell them as long as they have a state issued insurance license.  When it comes to properly using annuities for retirement, many different variables are often present.  How much income do I need?  Which assets should I use to fund an annuity?  When should I take social security?  What are my basic costs of living in retirement going to be?  What is the most tax efficient strategy for my retirement?  And the list goes on...  This is why working with a Fiduciary Advisor is so important when it comes to selecting the right annuity for you.  A Fiduciary Advisor has the appropriate licenses, training, experience and tools to help you select the right annuity for your needs, but also can legally make recommendations on how to structure your financial plan in a way that is in your best interests.  This is the difference versus working with an insurance only licensed representative.  We are not saying that all insurance only licensed agents are bad or unethical.  We are stating that to properly advise a client on selecting the right annuity for them, it requires a rigorous holistic financial planning process that only a fiduciary advisor should help with.

Everyone has heard horror stories of someone they know who was sold the wrong financial product or investment.  When it comes to the annuity industry, we hear this happen all too often.  You see, most annuity agents are what we refer to as "product pushers".  These product pushers use hard sell tactics to sell annuities to uninformed consumers.  The products they push are the ones that usually pay the agent the highest commission.  Often times, these products are not in the best interests of the client or the best product available on the market for the intended purpose.  They use the surface level features of an annuity such as protection from market risk and lifetime income to sell their products.  While these are great benefits of investing in an annuity, the more important thing is to understand how this specific investment fits into your overall financial plan to help you meet your goals.  Annuities are financial tools.  Knowing which tool to use, when and how to use it makes all the difference.  When it comes to your financial future, one simple mistake of investing in the wrong financial product can have a looming effect.  Avoiding this mistake at all costs could be the difference between having a dream retirement or one that seems like a nightmare.

When you open the phone book or go online and search for annuities, there are tons of annuity agents and financial advisors listed there.  The difficulty lies in knowing how to tell which advisors are the "great" ones that you would feel confident in working with and which ones you would never EVER want to use.  The "great" advisors work hard to distinguish themselves apart from the fly-by-night agents who use hard-sell tactics and push products not in the client's best interests.

The question now is how to find that "right" professional ... and we have the information to help you do just that.

Adding an annuity to your financial plan for retirement is a great idea for many.  When structured properly, an annuity can help you mitigate the financial risks of retirement such as longevity risk, market risk, sequence of returns risk, and inflation risk.  Having a guaranteed source of lifetime income can be a real difference maker in retirement.  The added confidence an annuity provides in the success of your financial retirement is unparalleled.   A true Fiduciary Advisor that understands annuities can evaluate your particular needs, and with the right tool set of products, strategies, and software can fulfill those needs for you and your family.  

The following is a summary on how to choose the right professional Fiduciary Advisor when buying an annuity for retirement. It covers some of the common mistakes made by consumers when buying an annuity and also the four steps you can take to help you in choosing a true "professional."

We hope you find the information valuable, and if you have any questions please email us at info@annuityassociation.com.

8 Mistakes to Avoid When Buying An Annuity

Mistake #1:  Choosing an annuity based on the highest lifetime income payout alone.  The annuity with the highest lifetime income payout is not always the "best annuity" out there.  There are many other different factors to consider.  Often times, the highest lifetime income payout annuity is from a lesser rated carrier. They offer a higher payout to compete with higher rated companies. Annuity companies receive rating assessments from 3rd party agencies on the creditworthiness and strength of the company. There are four large credit rating agencies that the insurance companies usually turn to for their ratings. They are A.M. Best, Fitch, Moody's Investors Services and Standard and Poor's.  In addition to the highest lifetime income payout, you should also consider the companies credit rating (we recommend A ratings and above), customer service experience, and other optional features of the annuity such as long-term care or early withdrawal riders.  The more add-on features of the annuity, the more benefits can be had in the long run.

Mistake #2:  Choosing an annuity based on the highest purchase bonus.  Many annuity agents will always try to sell the annuity with the highest purchase bonus because it looks good on paper.  A purchase bonus is an amount an annuity company offers to a client if they purchase a particular annuity. For example, if you have $100,000 and purchase an annuity with a 10% premium or purchase bonus, you would have $10,000 credited to the annuity for a total investment of $110,000.  This sounds great, right?  Who wouldn't want an extra $10,000?  However, in our research we find that the highest purchase bonus offering is not always the highest guaranteed lifetime income payout amount.  An annuity company with a higher overall lifetime payout percentage with no purchase bonus could still possibly be the highest lifetime income amount on an annual basis.  Simply put, if you take that same $100,000 investment amount and purchase an annuity with a 7% lifetime income payout and compare it to the bonus annuity with a total of $110,000 but the contract only agrees to pay 5% for life, the annuity offering the 7% lifetime payout amount would be the better purchase even though it doesn't offer a premium/purchase bonus. Many companies that offer a higher purchase bonus usually offer a significantly lower payout percentage for lifetime income.  Having a Fiduciary Advisor equipped with the right software to determine the highest annuity payouts is key to knowing if the purchase bonus is really what it's cracked up to be or not.

Mistake #3:  Putting too much money in an annuity.  One of the biggest mistakes we see is client's investing too much money in an annuity.  Annuities are great tools for retirement, there's no doubt.  But when it comes to knowing how much you should put in an annuity, our answer is always the same.  As little as possible and as much as necessary.  The best way to use an annuity is to generate enough lifetime income to at least cover your basic needs in retirement.  These are your costs of living such as housing, clothes, food, water, transportation and insurances.  You use the annuity to fill any income gaps your other sources of guaranteed income (social security, pensions) doesn't cover.  You always want to keep some of your assets liquid and accessible for an emergency fund, usually at least 6 months of expenses.  Lastly, keeping the rest of your assets in appropriately structured retirement accounts based on your risk tolerance helps you fight inflation.

Mistake #4:  Working with only one advisor to buy an annuity.  As consumers, sometimes we just want to get the process over with and don't feel the need to get a second opinion when it comes to buying an annuity.  Many agents or advisors only offer a handful of annuity products on the market.  For many reasons it's because they either are not contracted with all of the companies out there or they don't have the right software to compare the best annuities.  When they only offer a small amount of products, it's usually because they are wanting to keep things simple and they have built a relationship with those particular annuity companies.  This is not always in your best interests, but rather theirs.  Planning your retirement with an annuity strategy should be treated the same as when you go to the doctor for a serious illness or condition.  It is your retirement we are talking about after all.  It's most often recommended to get a second opinion, especially if your initial advisor is not giving you all the options available to you.

Mistake #5:  Working with an advisor who doesn't provide a written retirement income plan.  In our view, every agent or advisor selling an annuity should be equipped to provide their client with a written and documented retirement income plan.  This holds them accountable for meeting your income needs in retirement and gives you added confidence that their recommendation is in your best interests.  A fully written retirement income plan should include all of your costs of living in retirement and show you how the lifetime income annuity works in unison with your social security and pensions (if applicable).  Many advisors or agents do not specialize in retirement income planning so finding one that does is key.

Mistake #6:  Choosing an advisor without getting feedback or reviews from existing clients.  Any advisor can say anything about his past clients. And, sadly, some of what he or she says may not be true. Make sure you ask for references or read comments from current customers so you can depend on the advisor and his work.

Mistake #7:  Choosing an advisor that is not a licensed financial fiduciary.  Any insurance only licensed agent can sell fixed annuities.  However, they are not able to make recommendations or give advice on your investments.  This includes advising you on which assets to use to fund an annuity.  Also, not all brokers or advisors are licensed fiduciaries.  A licensed fiduciary is held to a higher ethical standard and held legally responsible for making investment recommendations in your best interests.  A Fiduciary Advisor holds either a series 65 or series 66 license.  

Mistake #8:  Choosing an advisor that does not have the software to compare all annuities available on the market.  When it comes to annuities, the best Fiduciary Advisors use tools and software to help you select the best annuity available on the market that meets your individual needs.  If the agent or advisor you're working with does not have this software in his or her tool set, you have to question how they know the annuity they're recommending is truly the best one.