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A New Approach to Annuities

QUESTION:  Kevin, should I buy this annuity?

ANSWER:  Probably not.

Slightly more helpful answer:  It's not likely to be the best investment vehicle for you.  Annuities have high fees and long reaching tax implications that make them poor choices for most people.  If we look at your entire financial picture, we are apt to discover more fruitful ways of building your long term wealth and securing your financial future.

QUESTION:  What is a better option for me?

ANSWER: Zero coupon bonds are usually a better investment vehicle for long term wealth building.

Explanation:  U.S. Treasury bonds are among the safest investment vehicles in the world.  There are two ways you can buy them.  When purchased at face value, they provide an interest payment during the term of the bond, and return your original investment at completion.  The second way is to purchase them at face value minus the projected interest payments (less than face value) with no interest payments during the term.  This second way provides an income stream, particularly effective when "laddered" and purchased within a tax deferred account (such as an IRA).  There are multiple advantages to this strategy, but when comparing them to the commonly advertised annuities that we see everywhere nowadays, the most notable one is flexibility.  We do not know what our futures hold, and this approach allows you to reconsider your situation each time a bond comes up, rather than having the money tied up permanently in an annuity.