Not long ago, my brother asked if I was still doing that research gig instead of having a real job. I said yes, that I was still mainly crunching numbers on index annuities.
He said that, from talking to me, he thought he kind of understood how index annuities worked, but he wanted to know where they fit, as he put it, “in the whole grand retirement planning picture.”
So I told him.
After I finished, my brother gazed into the distance for a while. Then he turned to look at me, and said, “So, investing in an index annuity is like jogging.”
Now, theres something youve got to understand about my brother. My brother runs. My Uncle used to say my brothers genes must have been crossed with a horse and a jackrabbit, because my brother never takes a car. Hes always walking or running everywhere.
So I could understand why my brother would try to see parallels between index annuities and jogging. But, I have to tell you, to me, his comment seemed a bit of a stretch.
So I said, “Now wait a minute. I just spent 30 minutes giving you a comprehensive presentation on the ramifications of risk and return, fixed versus variable accounts, investment horizons, and their interaction as primary elements in retirement planningAnd you condense all that down into a simplistic statement, than investing in an index annuity is like jogging?
“How do you figure?”
“Well,” my brother began, “based on what youve said, it seems to me that planning for a good retirementa good retirement being one where you have all the money you need to enjoy itis like running in a marathon with a stopwatch.
“The difference is that, in a regular marathon, the race is over when you cross the finish line, no matter how long a time it takes you. But in retirement planning, the race is over when the stopwatch buzzes and says youre out of time.
“If youre over or near the finish line when times up, youll have enough money to meet your retirement goals. But if the finish line is a long way off when the buzzer sounds, you wont be able to retire as you wanted to, if you can even retire at all.”
He paused (probably un-nerved by my unaccustomed silence). “Are you with me so far?” he asked. I nodded, so he continued.
“You can take the cautious approach and simply walk towards the finish line. Youll make steady progress, but you wont go very fast.
“Walking towards retirement is kind of like keeping your money in fixed interest products like those fixed rate annuities you talk about or in bank certificates of deposit. Youll keep moving forward, but when the timer goes off, you could still be a long way from your goal.