The magic bullet annuity
The term, magic bullet annuity, is one I made up. There is no such thing being offered by any insurance company.
However, after I tell you about my magic bullet annuity maybe you’ll think that’s what it should be called instead of the innocuous title of personal income annuity. I mean, come on, how much sex appeal does personal income annuity have compared to magic bullet annuity?
It helps to know what an annuity is before even considering putting money into one. According to Investopedia an annuity is:
“A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time.”
Put another way, the annuity buyer gives the insurance company money in one of two ways. A lump sum one time payment or a number of payments spread over a period of time. In return the insurance company pays you a stream of payments (annuitization) in the future for a given number of years or for your lifetime.
Sounds pretty bland or plain vanilla. I give you money today and you give me money tomorrow. What’s magic about that?
The magic bullet in this soup is the interest you receive during the “growth” phase. That is, how much interest are you receiving? This is where my magic bullet annuity shines.
It actually has two strategies in one contract. The choice is yours and depends on when you want to annuitize your contract.
Strategy one is a three-year-strategy. During the first three years of the contract you receive, respectively, a bonus of 30 percent, 37.5 percent or 45 percent. Using a 60 year old person depositing $1,000,000 into the contract as our example we see that if she begins annuitizing her contract in the first year she would receive a 30 percent bonus against her $1,000,000 making her contract worth $1,300,000.
If she waits until year two, she would receive 37.5 percent making her contract worth $1,375,000. If she waits until year 3, it is worth $1,450,000. Any of these options make for a nice sized lifetime monthly check.
If our 60-year-old decides she doesn’t need a check until she is 70, she opts for option two. Under this plan, she would receive a 14-percent bonus in each of those 10 years. Her $1,000,000 would grow to $2,400,000. She has more than doubled her initial investment.
Her lifetime monthly check would be a whopper to use terminology my buddy uses. I bet you can see why I call this particular annuity a magic bullet annuity.
A disclaimer is in order. Annuities are not for everyone. Always assess your particular needs before buying any investment.
I’ll close with this caveat. An annuity is the only investment that can guarantee a lifetime income. But, like I said above, it is your choice.
Tom Koziol is the Executive Director of Senior Outreach Ministries and a licensed life agent. He can be reached at firstname.lastname@example.org.