Jane Austen whose character Fanny observes in "Sense & Sensibility"
People always live forever when there is any annuity to be paid... An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.
Financial fads may come and go with the times, but wisdom and good basic ideas never get old, as noted in Jane Austen’s novel - published in 1811.
What is an Annuity?
In its simplest form an Annuity is a long term contract between you and a Life Insurance Company in which the company agrees to provide you with guaranteed periodic payments for a set period of time or until your death.
Let’s take a look at three well known figures who understood the value of an Annuity and take a look at their stories.
Benjamin Franklin
writer, inventor, Founding Father… and proponent of Deferred Income Annuities.
Franklin was born in Boston, but moved to Philadelphia at age 17. He wanted to leave a legacy and used the $2,000 Sterling he earned as Governor of Pennsylvania to be divided equally between the cities of Boston and Philadelphia. The money was to be used as loans for young apprentices, as he once was.
What was given to both cities essentially amounted to Annuities that provided payments well into the future. On April 17, 1790 both cities became the beneficiaries of Benjamin Franklin’s 18th century wisdom.
In a codicil to his will he stipulated that much of the money could not be distributed until 100 years after his death and the remainder not before 200 years after his death.
In 1990, 200 years later, the balance of the monies in the Philadelphia account stood at $2 million and in the Boston Trust at $4.5 million. The monies in the Boston Trust were invested using a new take on an old idea: the Annuity.
Click to read more on Benjamin Franklin.
Babe Ruth
the best base ball player in American history; Homers with Annuities.
Babe Ruth was popular back in the roaring twenties, and was known then as the “Sultan of Swat”. He dominated the game and lived life just as large off the field.
It was Ruth’s business manager, Christy Walsh, who was concerned that he was spending all of his earnings and had no interest in creating savings.
Christy introduced him to an Insurance Agent from Equitable Insurance Company, from whom he began purchasing Deferred Annuities. For the next 7 years, 1923-1929, Ruth yearly contributed more than half of his annual salary purchasing Deferred Annuities. That meant he was purchasing between $35K to $50K worth of Annuities... and just in the nick of time!
In October of 1929, the Great Depression hit the country hard and with the health issues Ruth developed in 1935 he was forced to retire. Though unemployed during the worst time in our country’s history, "The Babe" had the Deferred Annuity income for which to be thankful. Walsh created a financial plan where Ruth was able to start to withdraw an income when his career wound down.
It was reported that he received a yearly income of $17,500. In today’s dollars that would translate into an annual salary of more than $290,000.
Click to read more on Babe Ruth.
Ludwig von Beethoven
a world renown musician who bridged the classical and romantic ages, who understood the value of "Annuity for Life".
By 1808 he was substantially deaf and almost 40 years old, twilight years at the time. He was contacted by the French for a high-paying gig and Beethoven was ready to accept the offer. Jerome Bonaparte, King of Westphalia and Napoleon's brother, had offered him the position of music director at the court in Cassel.
But the social luminaries of Austria wanted to create for Beethoven a haven where he would be free of worries and could create his music master pieces. In 1809 two princes and an archduke approached Beethoven with an offer to pay him an Annuity for Life.
The one stipulation was that Beethoven must live, compose and perform his music in Vienna. This was one of modern world's earliest known Annuity contracts.
It was very fortuitous that he agreed to their offers… because in the years to follow Vienna incurred some economic downturns.
By 1812 the Annuity contract was starting to fall apart. Kinsky, one of the 3 signatories to Beethoven's Annuity died after being thrown from his horse while on military duty. Rudolph continued to pay his share of the Annuity.
But Lokowitz tried to claim financial hardship and wanted to stop making his Annuity payments. Beethoven was financially savvy and in turn sued, won and continued to receive his annual Income payments.
In fact, Beethoven's heirs received his final Annuity payment on October 6, 1827.
Click to read more on Ludwig von Beethoven.
From just these few stories we can see how Annuities have stood the tests of time.
They have been used as financial tools that helped sustain dreams and create dependable income.
Since those early days an assortment of Annuity products have been created. When nearing our retirement years, we might begin to start taking some of our assets out of the markets. We still would like some growth, but less market risk and that's when I look at:
Guaranteed Income Annuities
Guaranteed Future Income Annuities
How would these Annuities come into play and contribute some growth and stability in your portfolio?
Lets start with four broad types of cash outlays we incur:
fixed monthly expenses
unexpected expenses
enjoyment of life expenses and
access to strategic cash to hedge market volatility
Looking years into the future, what dependable cash flow streams do you have coming in each year that will support these outlays?
That's where Guaranteed Future Income Annuities comes into play. You would fund this type of Annuity with assets that have appreciated and you no longer want to keep them in the financial markets.
This type of Annuity is indifferent to what happens in the financial markets. You will be creating dependable and sustainable income streams designed with the budgets you worked out with your Financial Planner.
Planning for unexpected expenses can, at times, be difficult to manage. Please keep in mind what Fanny observed from "Sense & Sensibility"
An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.
The well-being of knowing you set up income streams that will be coming over and over again is major when planning for your future.
Unexpected expenses will pop up and they should not be pulled from an Annuity that was solely created to pay for your fixed recurring expenses.
Including a Participating Whole Life Insurance Policy in your financial plans will give you access to cash and/or policy loans, helping you be better prepared for the unexpected.
Insurance Products are financial tools that, when included in your portfolio, can help you better manage and balance your financial planning.
Debra K. Bedell
Insurance - a great Hedge against Risk.