Fidelity Annuities vs ATLAS Annuity Strategy

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Today we’re going to compare the Fidelity annuities offerings (along with a few other large brokerage firms) to having a more competitive strategy for using annuities as part of your retirement financial planning.

Limitations of Annuities Offered by Brokerage Houses

Now, most of these brokerage houses are limited on what they can offer you in terms of annuities. Firms like Edward Jones and Wells Fargo are most likely going to offer you some type of Variable Annuity, and they do have limited access to some Fixed-Indexed Annuities. But remember the variable annuity is what I call the “Wolf in Sheep’s Clothing.” It looks really safe like a Fixed Indexed Annuity, but behind the facade are some scary things.

So we tend to want to stay away from those if possible. Even though the big brokerage firms do have a handful of offers, you have to remember there are about 200 different annuity companies out there. And most of these big brokerage firms can only offer you five, seven, or maybe 10 available options. The reason is they’re technically what’s known as captive advisors, versus myself, who is an independent or non-captive advisor.

But today I mainly want to talk to you about Fidelity annuities, because I remember hearing or reading somewhere at one point that Fidelity is the number one seller of annuities.

Fidelity’s Approach to Annuities

That statistic tells me a couple of things about Fidelity. First, it indicates that Fidelity is doing something right by helping their clients secure guaranteed income. This level of service and dedication speaks to the satisfaction and trust that Fidelity’s clients have in the company. It’s a testament to their commitment to providing reliable financial products and excellent customer service.

Second, it underscores the sheer size and influence of Fidelity in the marketplace. Being a top seller of annuities means they have a significant client base that trusts their expertise and offerings. However, this popularity can also mean that clients might not be exploring other and potentially better options available in the broader marketplace.

The purpose of this podcast is to shed light on this issue. While Fidelity is indeed a reputable company, it’s essential to recognize that their offerings might not always be the best fit for every individual situation. Many other options in the market could potentially offer better benefits or more suitable terms for your specific needs. So, even though Fidelity may be doing the right thing, Fidelity annuities just may not be the best option available.

Fidelity Annuity Options

Here are the five companies that are offered by Fidelity at the time of this printing:

  • The Guardian
  • MassMutual
  • New York Life
  • USAA
  • Western and Southern

Now I have access to all these companies as well. And they’re all great companies that offer great annuities, but are they the best for your situation?

If you’re a client of Fidelity and you’re looking for an annuity, then you were offered one of these five companies or one of these ten products offered by these five companies.

The Challenges With Limited Annuity Options

And like I just mentioned, all of these are great companies and Fidelity is a great brokerage firm. They’re one of the largest in the world, but that doesn’t mean they’re offering you the best options out there. When you’re limited to how many annuities you can offer, you’re also limited to the number of solutions that you can offer.

As mentioned above, there are approximately 200 different annuity companies out there, and each company offers anywhere from 5 to 20 different products. So on the low end, that’s a thousand different annuities to choose from!

To just assume that Fidelity somehow has chosen the best ten that are out there out of a minimum of a thousand is kind of a stretch to believe.

With Fidelity annuities, you have the option of either a SPIA (Single Premium Immediate Annuity) or a DIA (Deferred Income Annuity).

Understanding SPIA and DIA Annuities

A SPIA stands for a Single Premium Immediate Annuity. That means you’re sending a lump sum of money to the insurance company and within 30 days, they’re going to start sending you a monthly check.

A DIA stands for Deferred Income Annuity. That means you’re sending a lump sum of money to the insurance company today and sometime in the future, you’re going to activate that income.

Problems with DIAs:

  • Fixed Start Date: You must pick a start date at the time of the application.
    • If your retirement is uncertain, this can cause issues.
  • Early Activation: The policy has to be in force for at least 13 months if you’re going to start it early.
  • Deferred Income: If you want to defer the income further, you have to start it within five years.

These scenarios can create problems if you need flexibility. For example:

  • Immediate Need: If you realize you need the income next month, you can’t do that—you’ll have to wait at least a year.
  • Extended Work: Maybe you get a good deal as a consultant and you don’t need the income immediately.
  • Inherited IRA: If you inherit an IRA from a non-spouse, you must take all the money out within 10 years due to the Secure 2.0 Act. Activating an annuity income at the same time can push you into a higher tax bracket.

Again, SPIAs and DIAs are fine products, and I use them, but they’re not the right choice for everyone. Their design serves a specific purpose.

The Importance of Annuity Strategy Over Simple Annuity Funding

Okay, so if Fidelity and some of these other brokerage houses are doing the right things by helping their clients get guaranteed income, then why am I even taking the time to discuss this? Because there is a big difference between just funding an annuity and using a strategy to get the most out of annuities. So we’re going to look at some examples here of just purchasing an annuity versus using an actual strategy like I do here at Atlas.

The Benefits of Strategic Annuity Planning

Example: Immediate Income

Let’s start with a 60-year-old couple who’s going to fund an annuity from Fidelity with $100,000 of their portfolio. A SPIA from Fidelity would pay them $6,192 per year for every $100,000 they fund the annuity with.

ATLAS Strategy:

  • Split the Money: Divide the $100,000 into two annuities.
  • First annuity pays $7,100 per year for the first 10 years.
  • Second annuity, a fixed indexed annuity with a guaranteed roll-up, kicks in after 10 years and pays $7,100 per year for life.

This results in $900 more per year, or 14.5% more income, just by using a different strategy!

Amount FundedFidelity SPIA IncomeATLAS Strategy IncomeDifference Over 30 Yrs
$100,000$6,192$7,100$27,240
$200,000$12,384$14,200$54,480
$300,000$18,576$21,300$81,720

Example: Deferred Income

For a 60-year-old couple funding an annuity today but not planning to take income until age 65 (a 5-year deferral):

  • Fidelity DIA: $8,520 per year for every $100,000.
  • Atlas Strategy: Fixed index annuity provides $10,520 per year.

This is 23.5% more income!

Amount FundedFidelity DIA IncomeATLAS Strategy IncomeDifference Over 30 Yrs
$100,000$8,520$10,520$60,000
$200,000$17,040$21,040$120,000
$300,000$25,560$31,560$180,000

So at first, when you see these numbers, you might think it’s only a few hundred dollars more a year. But over the long term, these differences can add up to significant amounts of additional income.

Recap and Final Thoughts

My intention is not to beat up on Fidelity or any of the companies they represent, because again, I have access to those companies too, and I use them. But, I don’t sell products. I develop strategies!

Key Points:

  • Brokerages’ Limitations: Brokerages are limited on what annuities they can offer you.
  • Strategy Matters: There’s a difference between funding an annuity and using an annuity strategy.
  • Long-Term Impact: Small differences over a long period can make a huge impact.
  • Maximizing Value: It’s your money, so why not get every penny possible by checking the open marketplace?

By understanding these key points, you can make more informed decisions about your annuity options and ensure you’re getting the most value for your investment.

Podcast Episode 27: Fidelity Annuities vs ATLAS Annuity Strategy

Download Episode 27: Fidelity Annuities vs Atlas Annuity Strategy on Apple Music


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