Coffee with Mike – A Word On Annuities

Welcome to Coffee with Mike! It's a pleasure to be able to do these videos and to know that there are some people who find it helpful. I hope today's video you'll find it to be helpful and that you will consider some of the thoughts, of the things that i'm going to throw out at you, to help you really decide whether this insurance tool is really for you. The insurance tool I want to talk to you about is an annuity.

I've had a lot of questions about annuities lately, and I think it's because of the topsy turvy ride we've had in the investment market over the last year. People have this- we all have this tendency to engage in what's called recency bias, it's what psychologists call it recency bias, being that the most recent traumatic event that we've had, whether anyone else would consider traumatic, if you considered it to traumatic, that most recent traumatic event tends to color the way we see things. Seems to color the way we think about things, and we begin to make decisions that aren't exactly representative of an objective reality. 

I just want to make sure that we don't get caught up into making some financial decisions because we got hurt, because we got scared, because we got panicked, because we're worried about the future, because we don't know who else to trust, because, because, because... We don't want to put our money or our security in the hands of someone or something that we really don't know that much about, and that's why I'm talking about annuities. 

So quickly, I'm just going to say, remember that annuities are a form of life insurance, and it's best function, it's most optimal function is to protect the amount of money you put into it in the event of your untimely death. We ask you, for most of us when is death not untimely? It's always untimely! We never know when it's going to occur. So we choose to we choose life insurance because of that uncertainty. Then when we think about why we might put money in it, is it because of "we want to protect the principle in the event of our death" or are we just hiding? Are we just wanted to hide our money from the investment market? from the volatility that it's been through? 

If you remember that what I've said once before, that insurance is about avoiding catastrophic loss and there could be a catastrophic loss because of your death, annuities could be appropriate for that particular reason. But what is not appropriate is to try your hide your money from volatility and put it in annuity because you're scared of the market. There are so many different things I could say about that, and I'll probably have some other videos on that, but here, let me say this this one thing right now. It's that to hide your money from the market because you think it's going to be catastrophic is to miss the point of the market. 

The market's volatility is what makes it work. That's not what you want to hide from, that's what you want to embrace! You have to learn to embrace it, you have to learn to be engaged with it to the extent that your risk tolerance will allow you to be engaged, right? So, it has to be appropriate for you to be engaged in a certain way, to a certain degree, to a certain depth, but to all out hide from the volatility of the market is to ignore the character of the market. 

The market's volatility is what makes it work. Why are you hiding from that instead of hiding from that? Let's find a way for you to engage in it to the degree that's appropriate for you now and not end up in a place, in an annuity, someplace, somewhere, as good as that annuity may be or as good as that insurance company, or maybe as bad as that insurance company may turn out to be, you're not locked up in one place you're not depending on one company for your financial future. Think about that: you're moving your money to one company in saying, "this one company is going to act on my behalf, in my best interest, better than all the other companies that the market represents.

I just want to help you think through if we're trying to protect catastrophic loss of the event of your death, then annuity could be appropriate. But if we're trying to hide from the volatility of the market, is that really what's best for you? OK, it might be, but if it is you ought to know that, not just be guessing at it, not just be making a panicked decision, you ought to know it, be sure, be confident that that's the right decision for you, and that's why we're here.