Investing governance for college and university endowments
College and university endowments are absolute marvels. Yes, you play an essential role in the long-term health and sustainability of your...
3 min read
Chris McAlpin
:
May 20, 2024 5:51:45 AM
You worked hard all your life, and now you’re retired. Congratulations, you’ve more than earned it! Are you comfortable? Yes, but you know you could be doing better. You want to be making more money the way you used to through your investments. However, the state of the economy and politics being as they are, you may be wondering what opportunities even exist today to increase your income in retirement.
Now, before I go any further, I do want to be clear that what I am about to discuss here is not a blanket recommendation, nor is it a prediction. In order to determine if what we are about to discuss (or any other opportunity, for that matter) is right for you, we should sit down and talk through your specific circumstances.
That being said, annuities are one such retirement income opportunity we believe you should consider in these times. With an annuity, you invest money with an insurance company. As part of that agreement, the insurance company commits to paying you back with regular income installments, starting either immediately or at a later date—ultimately, providing you with a steady stream of income in retirement.
There are other forms of annuities such as: guaranteed growth with a locked-in interest rate, stock market-like investments that are protected from loss, long-term care combinations, and many others. For today’s purposes, we are talking about retirement income annuities—but I am happy to discuss any of these options with you.
One last bit of housekeeping before we dive in. Keep in mind surrender periods are often involved, so make sure to discuss the entirety of the annuity with your Sound Financial advisor.
Now, why are annuities such a lucrative investment right now? I’m glad you asked.
Today, inflation is what we call “sticky,” meaning that when inflation makes its way into the economy, it doesn’t leave as easily. Inflation lingers like the guy at a party who’s still there at 9:15 p.m., long after all of your other guests have gone home … and he’s got at least a couple more hours in him of college football talk. We saw this happen back in the 1970s, when inflation hung around in our economy for a decade. Now, we’re seeing it again today.
🔎 Related: What is the Federal Reserve + What Do They Do?
This is why we’re saying the Federal Reserve is “in a box,” so to speak. Inflation is lingering and economic growth is slowing. In response, the Federal Reserve needs to raise interest rates or keep them higher in order to flush inflation out of the economy. But they also need to lower interest rates to support the economy and help it grow. I’m sure you can see the challenge here—it’s impossible for the Fed to do both; they must choose one option.
This is where annuities come in for you, the savvy retirement investor.
For those of you who we’ve had the honor of serving for some time—there are quite a few of you, and we appreciate you all—you likely haven’t heard us talk much about annuities in the past 10 years or so. That’s because from approximately 2012 to 2022, annuities were not a particularly lucrative investment option.
🔎 Related: How Does the U.S. Economy Work? (an Accessible Overview)
But that has changed given the current economic landscape. In fact, many of these annuity products are (in my personal opinion) the best I’ve seen in my career. Why? First, interest rates are the best they’ve been in 20 years. Second, these products are better structured than the old annuity products you may have encountered before. They are second and third generation products that are much more client-friendly.
(If you’re really interested in some of the more nerdy aspects of what’s changed with annuities, please let me know. I’m happy to go into more detail!)
As a retiree, you need solid interest rates for a portfolio to perform well. Given the economic outlook of the next two to five years, combined with the interest rate outlook both in the short-term (two to five years) and the long-term (10 to 15 years), I believe you may want to consider annuities to lock in these currently higher interest rates today.
Because, in this case, the higher interest rates appear to be in your favor.
I’ll be honest, I’ve never written an article like this before. Because of my fiduciary responsibilities, I’ve always been careful about touting a product. But I believe this is so important that our clients like you need to pay attention. So, this is me banging the table, figuratively speaking, to bring attention to annuities.
As you consider annuities for potential inclusion in your portfolio, here is what you should be asking yourself:
We encourage you to have a conversation with us to discuss these questions, as well as whether or not annuities are the right investment for you.
Schedule a time to talk with us, we hope to hear from you soon.
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