I often get the question, “How much should I put into an annuity?” Well, that is a case-by-case situation. But, the correct question is, “How much do we need to solve the problem?” Or, “What is the purpose of the money?”
At the end of the day, there is no “one-size-fits-all” answer to the question of, “how much?”. When I am designing a strategy for someone who needs income it could very well be that my clients will need to allocate 65% of their funds because they need every single dollar of guaranteed income to make sure they can survive and pay their bills. Others who have done very well at saving and investing or have guaranteed pensions may just want to protect their money from the losses that will come with stocks, bonds, and mutual funds. So, for them, maybe diversifying 25% of their overall portfolio would be enough. It literally all depends on the Purpose of the Money and what we want to accomplish.
Annuities can be a very flexible arrow in the quiver of retirement when used appropriately. However, there is a hoop to jump through. And that hoop is suitability. The annuity company does not want you to put too much of your money into their products. When is the last time you’ve heard that from an advisor? Probably never!
If you, or most likely your advisor, attempts to put too much money into your annuity it will get kicked out of the suitability process and delay protecting your money.
In order to avoid this, here are some general guidelines on how much you can allocate to an annuity and what would cause an application to get kicked out due to suitability issues:
1. High Annuity to Net Worth Ratio:
- Net Worth of $100,000 or less: Some companies will not accept applications from potential clients that will have more than 50% of their Net Worth in annuity.
- Net Worth above $100,000: Most companies will accept up to 70% of the client’s Net Worth in annuities. Between 70%-75% would be at the discretion of the individual company. And most companies will not accept above 75%.
- Annuity to Net Worth includes all annuities, including those that are in or out of the surrender charge period.
2. Insufficient Liquid Assets
- A consumer under the age of 59 ½ must have no less than 3 months of expenses covered by liquid assets.
- A client above the age 59 ½ must have no less than 6 months of expenses covered by liquid assets.
3. The client has less than $500 per month of disposable income.
4. If transferring an annuity with an Income Rider, the Income Rider of the accepting company does not guarantee the same level or above of the current company guarantee.
That last one is something that I hear happening all of the time. A lot of annuity agents trying to make a quick buck will encourage you to surrender a current annuity under the guise of a “huge bonus” or a “much higher roll-up rate” with a different company. Beware the annuity agent, or the financial advisor (yeah, I’m talking to you Fisher), that tries to convince you to surrender an annuity during its surrender period.
Luckily, a transfer to another annuity company will most likely get blocked by the new company’s suitability process. This is an honest business among the carriers, and they will not allow the agents to make choices that could harm a client by “churning” policies to make a quick commission. However, that is not the case with the equity world. A financial advisor could not only convince you to surrender an annuity, but then take 100% of your money and put it at risk. It never fails to astound me the regulations that I must abide by, but the guy on the other side of the table is allowed to risk every single penny that someone has worked their entire life for with no consequences. Again, beware of the advisor that tries to convince you to surrender a policy that is still in its original term.
But, you can avoid all of this hassle by simply clicking the green “Schedule A Call” button and have a professional strategy put together by an annuity expert. My main goal is always to get the most amount of return with the least amount of investment. It’s not trying to get you to put the max allowable amount into an annuity. That just causes more problems down the road and it is not worth the commission for the number of headaches, hassles, and heartaches that it will surely cause. Not just for you, the client, but for me too as the advisor.
To find out how much would be an appropriate amount for you personally, just click the “Schedule A Call” button to see my calendar or reach me directly at, 636.926.6500!
All the best,
Marty