June 2019 remarks
NEVER INVEST IN AN ANNUITY!! You’ve no doubt seen this kind of headline in the financial pages or you’ve seen pop-up ads on your computer or you’ve heard some friend repeat what he’s heard from his buddy’s uncle. Are they serious?
Let’s start with the basics: An annuity is a tax-favored savings instrument. The government gives it special tax treatment because it’s designed for retirement income. An annuity can be qualified or in other words, funded with money that you have not yet paid taxes on, like an RRSP in Canada. Or non-qualified, that is, funded with money you’ve already paid the tax on. Like money you take from your paycheck or out of your savings account. Either way, the tax on the growth in your Knights of Columbus annuity each year is deferred…you pay no current tax on it and pay only when you withdraw money.
I’ll tell you that I think an annuity is a is a great product in the right situation. Especially a Knights of Columbus annuity. In addition to tax deferred growth, here are a few more reasons why I think that way:
- Your minimum interest rate is guaranteed…for life! There is a floor that the interest rate will never drop below. The good news is that we’ve always paid a higher current interest rate than the guarantee. This feature means nobody has ever lost a dime in a Knights of Columbus annuity…and never will!
- Your principal is guaranteed by the Knights. Now that kind of guarantee is only as good as the company backing it…and we’ve had 40+ years of Superior ratings from A. M. Best for financial strength. (As of January 2019, rated A+ Superior by A. M. Best)
- You are charged no administrative fees each year…100% of your money goes to work for you earning interest from day one.
- Even though annuities are designed for long-term growth, after one year you can access 10% of the value without any KofC penalty.
- Owners of annuities name a beneficiary; this means that at death, the proceeds bypass probate. This saves time and usually money, too.
- You can enjoy an income that you (and if you wish your wife) can never outline!
But let’s be fair; an annuity is not the answer every time. It’s not a short-term product. It’s not designed to be a “put and take” account where you stick some money in and then take it out a short time later. There is a reducing early withdrawal penalty over the first seven years if you take out more than the 10% free withdrawal. That feature, in all annuities, not just the KofC, is to encourage people to leave the money alone until retirement age.
So, although there are situations where an annuity is not the proper product, there are many where it is…And we haven’t even talked about triple compounding, protection from creditors and other features.
How do you know if an annuity is right for you? Meet with me and let’s look at your goals. It might be the perfect fit.
Where do you keep your safe money?