“A friend introduced me to a very nice Christian man who is recommending I put my money into some kind of annuity or bonds or something like that. I’m not a stock market person. I don’t understand finances, but I really like this young man. He seems so honest. Does this sound like a good deal?”

My stock answer is, “No.”

Not because I know this is a questionable deal, but because I haven’t heard enough.

When evaluating offers (financial or otherwise), there are always two pertinent factors to study: the proposal and the person.

I hope this young man is exactly what he seems. However, I also know what victims often say right after being fleeced: “Oh, but he seemed like such a nice, Christian man!”

Classic logicians call this an “inverse ad hominem argument.” You rely too much on your evaluation of the person, and not enough on your evaluation of the person’s proposal.

Again, I am not saying this young man is a con artist. I’m urging you to look deeper.

The failure to investigate is how bad deals get consummated every day. A bad idea is easy to hide inside a Trojan horse of charm and smooth talk. 

So how does all of this apply to you?

When you are evaluating any idea or proposal, financial or otherwise, I suggest balancing two parts of the value equation: character and content. 

First, evaluate the other person’s character. You like him. Great. Now, go ask others who have dealt with him over a long period of time what their experiences have been.

Check references. Don’t simply settle for murky promises from a winsome personality.

Second, consider the content of the offer. What exactly is this person proposing you do? 

In the example above, both bonds and annuities were mentioned. Those are very different instruments. Did the person really recommend both? Or is there a chance you misunderstood? 

You need to make sure you understand the content of the proposal. Here’s a good test: Can you explain the offer to a friend or family member in such a way that they understand the broad outlines of the proposal?

Until it’s clear to you, it should be a “no go.”

By focusing on the person (but not the proposal), you leave yourself open to a scam. And by focusing solely on the proposal, you may end up with a great plan/idea that is being overseen by someone who’s incompetent (or dishonest).

Character and content—both are important. Don’t leave out either in your decision process.

One last thing…is the question of retirement income keeping you up at night? Are you wrestling with the question: “How can I turn my retirement assets into money I can live on for the rest of my life?!”

If so, email me at bmoore@argentadvisors.com. I’ll send you a free link to take the RISA^® Profile. This simple, ingenious quiz takes mere minutes, and it can save you a LOT of stress in retirement.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

This is what’s called a “single premium immediate annuity” (SPIA). It’s essentially a form of insurance. 

To the recipient, it works like an employer pension plan. When you retire, the SPIA, (technically, the insurance company) pays you a set amount per month for life. Or, in some cases, as long as you and/or your spouse live.

How can they do that? The obvious question is “How can a company afford to do that?” After all, some people live a LONG time. 

I spoke with a client recently who is in his early 90s. His beloved grandmother lived to be 102. She was born in 1854…meaning she lived through the American Civil War!

Insurance companies don’t fret over clients who live a long time. They know if you gather a large enough group of people, you can reliably calculate how many of them will live to a good old age, die early, or reach average life expectancy.

In other words, when an insurance company calculates SPIA payments, it isn’t thinking of one person, but thousands. 

How SPIAs work. Retirement is when workers need to turn their 401(k) and IRA assets into income. SPIAs can be an option that provides certainty unavailable from the stock and bond markets, which are often volatile. 

Here’s an example: Janet Jones is about to retire at 65. She stands to get about $1,000 from Social Security each month. She knows she can’t make it on $1,000 per month, but fortunately she has $250,000 in retirement savings. If she were to withdraw a conservative 3% of her savings annually (i.e., $7,500) that would pay her $625 per month.

Janet knows she can’t make ends meet on $1,625 per month! She also remembers some negative investing experiences. She’s scared to put all her assets into the stock market—and try to live off the profit. What if the market goes south for an extended period? 

After hearing about the SPIA option, Janet finds an insurance company willing to take her savings and guarantee her $1,405 per month for as long as she lives. 

This sounds great until Janet wonders, “What if I die early? Suppose I only get two checks for $1,405 and then I die? The insurance company would have taken my $250,000 and given me only $2,810. No thanks!”

Other options.

Janet has some other options.

If she agrees to take a lesser amount—$1,379 per month for life—she can get a guarantee that if she dies before ten years are up, a beneficiary named by Janet will get the remainder of those $1,379 monthly payments until ten-years’ worth of payments are made. 

That guarantee means Janet and/or her beneficiary will receive at least $165,480 worth of payments. And if Janet lives to age 102 like my client’s grandmother, she’ll ultimately get over $600,000.

Janet could also choose another option that promises to pay $1,260 per month for as long as either she or her spouse is alive.

A few caveats:

• Understand, when you buy a SPIA, your money is gone to the insurance company—you’ll never get that lump sum back. What you will get back is a guarantee that as long as you are alive (or possibly longer, depending on the option you choose), you or your spouse will receive an income. 

• All of the numbers here are from a single, middle-of-the-road insurance company. Remember: It’s the insurance company that guarantees a certain income, not a government entity. 

• Understand, your SPIA’s monthly payments will not be increasing (unless you pay extra for the privilege), so inflation may present a problem.

• Always work with a financial pro and shop around for the best deal.

SPIAs can be an important piece of the retirement income puzzle for many Baby Boomers. But it should not be the only piece, and they aren’t right for everyone.

But if you find yourself short on dollars and safe options, you should at least give a SPIA a close look.

Columns like this trigger lots of financial questions. Make sure you’re asking all the right ones. Email me at bmoore@argentadvisors.com and I’ll send you my free list of “30-Something Questions for People Who are 60-Something.”

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.