Broker Check

Monday Money Report

| September 28, 2020

We ended last week on a positive note, recovering some of the month’s losses.  While we’re down for the month, the 3rd quarter is still positive. Earlier in the month, the losses were coming from tech stocks and growth stocks.  At the beginning of last week, we saw value and small caps declining.  On Friday, tech stocks bounced back a bit, and the renewed consideration of another round of stimulus also helped.

Last we gave you a high-level overview of annuities.  This week, we’ll take a deeper dive into variable annuities.  If you remember, these are annuities that are invested in the market, through separate accounts.  Those are things that look a lot like mutual funds, but are only available through an insurance product.  Variable annuities can lose value, but many of them have riders, or contract additions, available that may make them useful if you want a guaranteed income stream.

Years ago, to receive that income stream, you had to annuitize your contract.  That meant you gave up any access to the principal, or money you had deposited. In turn, the insurance company made regular payments to you for a set period, usually life.  Which meant that if you lived to be 110, you had a pretty good deal.  But if you died the month after annuitizing, not so good. And if you needed some of that big lump sum you gave the insurance company? Well, better save those monthly checks.

Enter the variety of income riders.  Riders are provisions that add benefits to or amend the terms of a basic annuity contract.  While there are different kinds of income riders, they essentially work the same way.  The basic annuity works like a normal investment account.  You put in money, choose the investments, and the value goes up or down depending on the market. If you decide to take money out, or close the account, the value is whatever the account is worth that day. 

There’s a second value that the rider provides. This is an income value.  It typically increases with the value of your investments, or at a pre-determined minimum amount, whichever is greater. This value then locks in at set intervals. When you decide you want that monthly income, the insurance company guarantees you a percentage payout of that income value.  Even if your cash value goes to zero, you still get that monthly payment. But, if you need extra money, you can tap into whatever cash value you have remaining.  Naturally, that’s going to reduce future payments.  But, you haven’t given up your ability to tap into the balance, and if you die, your heirs receive anything that’s left.  Some even have death benefits that return the entire initial premium to your heirs if there’s any money left at all.

That sounds amazing, I know. But there are all kinds of things you need to consider before you purchase an annuity.  You’re going to pay more for that annuity that you would for a regular investment account, to cover the cost of making those guarantees. It’s important to note that those guarantees are backed by the claims-paying ability of the insurance company.  One way we like to use annuities is to cover required expenses in retirement – rent or mortgage, health care, food. But if you have a pension, or your Social Security is enough to cover those costs, or if you have enough assets, you might not need an annuity.

Some questions to ask if you’re being sold an annuity: Why this one? From this company? Which other annuities did you consider? Is it a proprietary product that I can’t move to another advisor in the future? How much are you being paid on this? How does this improve my financial plan outcome? Good things to know before you move forward. If you want a second opinion, give us a call.  We’re happy to provide a second opinion.

We also have some great educational events over the next two months, including virtual talks on Social Security, and our Retire on Purpose and Women, Wine and Wisdom seminars.  You can register for these and more on our website,, or check out our Facebook page to learn more.  

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. CovingtonAlsina and Great Valley Advisor Group are separate entities from LPL Financial.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Fixed and variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investment(s) may be appropriate for you, consult with your attorney, accountant, and financial advisor or tax advisor prior to investing.