Someone stole my crystal ball last week. Now I can only guess at what will happen in the future. That’s too bad because my clients ask me to predict the future several times a day.
They ask me what interest rates will be next week, next month, or next year. I tell them, “Rates will go up and down, up and down, and continue doing that until the end of time. However, rates have been trending (up or down) for the past month.”
The best rate advice I give my clients is to ladder rates by spreading their money over 3-, 4-, and 5-year period annuities. If rates are higher 3 years from now, we should have put all the money in 3-year annuities. On the other hand, if rates are down in 3 years, we should have put all the money in 5-year annuities. At the end of the period, I can tell my clients if we made the right decision, but not before then.
Another prediction I’m asked to make is, “Should we set this annuity up with my wife or me as the owner/annuitant?”
My answer is, “Tell me when you are going to die, under what circumstances, and I can tell you exactly what to do.”
Since we don’t know who will die first, we go with the odds and normally use the husband as the owner/annuitant and the wife as the primary beneficiary.
If multiple annuities are involved, we’ll mix up the owner/annuitant designations.
Professional financial advisors use their training, experience, and wisdom to ask their clients questions in order to offer the best advice possible, but the bottom line is, we are all still guessing because none of us have a crystal ball.
Clients do ask some questions that can be answered clearly and simply. For example, “What happens if I die while owning this tax deferred annuity?”
The answer is, “If your wife is the primary beneficiary, she will have 3 options–cash out, pay out, or switch out.”
Cash out means she can cash out for the surrender value, pay tax on the gain and do whatever she wants with the money.