00:00 Speaker A

In 2024, annuity sales rose 13% from the year prior, reaching $434 billion according to research and consulting organization, Limra. The firm says favorable economic conditions and growing investor awareness around annuities helped propel that growth. But our next guest says that annuities are not for everyone. Here with more, we've got John Shrewsbury, who is the Genworth Financial advisors co-owner and managing principal. John, good to have you here with us. So, let's start with exactly what annuities are for those who are not exposed.

00:46 John Shrewsbury

So, an annuity is a contract with an insurance company, and what you're contracting to do with that insurance company is to provide you a regular, predictable stream of income during retirement. I say annuities are not for everyone because if you're not heading toward retirement or in retirement, you probably don't need that. But an annuity is the only investment vehicle that can transfer the risk of a regular, predictable stream of income that you can't outlive to a well capitalized insurance company and it allows you to create a stream of income very similar to a pension or a Social Security check that we think about as foundational income for someone as they try to meet their basic living expenses with guaranteed income sources.

01:56 Speaker A

Okay. And so that starts to get at who annuities could be good for. What are some of the pros there? And who could it be good for ultimately?

02:14 John Shrewsbury

So, we normally see the use of annuities with people who are very close to retirement or already in retirement. What they're trying to do is they're trying to build that foundation of income. You know, if you just think about a personal balance sheet of your monthly liabilities, your electric bill, your mortgage, uh your food bill, all of those things are regular, predictable expenses that you're going to have. We believe that that ought to be met by regular, predictable income. Most people have one source of regular, predictable income in their life and that's Social Security. They may have a pension, but there's about 12% of the population that actually has a pension. Other than that, the sources of income are not guaranteed unless you utilize an annuity, and that's where an annuity fits best. Annuities are not for everybody. I know that there's a lot of people that sell annuities because they have an insurance license to do so and they are made out to be uh something of the Swiss Army knife of all kinds of investments. But really and truly, an annuity is a retirement vehicle that produces income.

04:03 Speaker A

And so you started to hit on this a little bit, but what are the cons of annuities?

04:12 John Shrewsbury

Yeah, the an annuity contract doesn't really have what I call a personality. It doesn't uh it doesn't act a certain way. Mostly, it's a tool, and if that tool is used the right way, it can be great. But if that tool is used the wrong way, then it can be a problem. For instance, there is a penalty for early withdrawal of income from an annuity prior to age 59 and a half, much like an IRA account. So, you would want to avoid an annuity if you need income from an investment prior to age 59 and a half. Annuities do grow on a tax deferred basis, but there is a commitment in making an investment into an annuity. You don't put money into an annuity to later think about, "Oh, I'm going to take that and do something else." What you're really doing is you're buying yourself a stream of steady income for retirement. If it's used for almost anything else, then it's probably going to be problematical. With the exception of sort of a new age of annuity products called registered index linked annuities. Those annuities can buffer downside risk in the market for long-term investors who really want to be sure that they arrive at a certain spot in their life with a certain amount of money. Those RILA contracts can be designed to actually do that during the accumulation phase of your wealth program.

06:32 Speaker A

Okay. And so if you are speaking with an agent that can sell you an annuity, what are the top questions that you should be asking?

06:44 John Shrewsbury

I think first of all, you have to ask yourself, "Do I have a gap in income? Do I have a need for another stream of regular, predictable, dependable income?" If the answer to that is yes, then the answer could be an annuity. You need to talk through all of the fees and administrative charges that may be attached to a particular annuity. Understand how it works. Understand what's going to be left if you die prematurely. Understand that that income will last you the rest of your life, but does it take care of your spouse? There's a lot of complexity to that, and that's why we say that much like prescriptions are the uh the territory of a doctor, uh then an annuity really needs to be administered by a registered investment advisor that understands the full picture of the client's financial situation and can prescribe the type of annuity that works best for them.

08:17 Speaker A

When do you know, and we only have 30 seconds left here, but on the commission structure, when do you know that someone's just trying to take advantage of you?

08:27 John Shrewsbury

Well, I think if they're trying to fit a square peg in a round hole, if there's some story that they're giving you that doesn't quite fit with your situation, then that may be a red flag that you're trying to be sold something as opposed to use a tool that actually helps you in your overall financial plan.

09:01 Speaker A

John, good to have you here with us today. Thanks so much for taking the time.

09:06 John Shrewsbury

Thanks.