As a financial planning tool, annuities are among the most versatile and effective vehicles when used for the right reasons. With the variety of different annuity products available, and the many unique features they include, they can be applied in any number of situations to help physicians achieve their long term savings objectives. The key is to understand your financial situation well enough to understand the reasons why physicians buy annuities. That usually requires a thorough assessment of your financial picture including your current investment strategy, your long term objectives and your need to balance risks.
Top Reasons Why Physicians Buy Annuities
Reason #1 – Increase the Safety and Stability of Your Investment 
Portfolio
Smart investors apply an asset allocation strategy in order to achieve the necessary diversification and proper balance in their portfolio which will maximize long term returns while minimizing risks. It’s important to invest in a mix of asset classes that will ensure your portfolio performs well in all economic conditions. Many savvy investors will use fixed deferred annuities as a stabilizing tool to offset the volatility that can be expected with stocks and bonds. All portfolios can use a degree of certainty along with some guarantees that, no matter what happens, there will a guaranteed income in the future. No other vehicle can provide that assurance as well as annuities.
Reason #2 – Less Sleepless Nights
If you lived through the stock market turmoil of the last decade, you may have grown accustomed to sleepless nights. After the stock market crash of 2008, billions of dollars flew from the market into deposit accounts, CDs and annuities. For physicians with shorter retirement timelines, annuities provide a higher degree of certainty, flexibility and security than other fixed yield vehicles. If you are lying awake at night worrying about outliving your retirement savings, annuities are the best “sleep insurance”. Many types of annuities have minimum rate guarantees, so you can be assured of achieving some growth on your money in declining markets. Annuities can also provide financial security assurance through guaranteed income payments that will last as long as you do.
Reason #3 – You’ve Maxed Your 401(k) Contributions
In today’s economic environment physicians are encouraged to save as much as they possibly can in order to secure their retirement. Presently, there are no better vehicles for accumulating retirement assets than your 401(k) plan or your IRA. For physicians who are fortunate enough to be able to contribute the maximum amount to their plans, and who want to be able to save even more, deferred annuities may present the best option. Like their qualified plan counterparts, annuities enjoy tax deferred accumulation. But, unlike qualified plans, there are no required minimum distribution rules, so annuities can be allowed to accumulation well into retirement to act as a cushion for your retirement plan.
Reason #4 – You’re Tired of Paying Taxes on your Earnings
Annuities enjoy the same tax favored status as qualified plans in terms of accumulated earnings. By enabling your earnings to grow tax deferred, they have the opportunity to grow more quickly. The earnings are not taxed until they are withdrawn. However, if you elect to receive your annuity funds in the form of guaranteed monthly income, you can continue to defer income taxes because they aren’t payable until you actually receive the income. Even then, only a portion of your monthly annuity income is taxable because it is comprised of both your principle (not taxable) and your earnings.
Reason #5 – You Need to Protect Your Assets
We live in litigious society which makes physicians vulnerable to lawsuits or debt claims that could decimate our assets. In most states, annuities are exempt to some extent from claims that arise from litigation or debt collection. They won’t work if it is found that you invested in an annuity merely to avoid a claim against your assets – that would be considered to be fraud. Also, all states have their own rules and exemption amounts. Some states exempt annuities as a whole, while some don’t exempt them at all.. Annuities are a logical asset protection option if you live in the right state.
Summary
No matter the investment vehicle, you should have a good reason for choosing it. And the reason needs to be your own, based on a thorough understanding of your financial needs. For the reasons listed here, there are annuity products, or some combination of annuity products that will help achieve these objectives. For some physicians, the choice of an annuity won’t be based on any one specific reason; rather it will be based on the fact that they can be very versatile in addressing a host of financial needs including tax reduction, safety of principal, income guarantees, competitive returns, and as a way to balance an investment portfolio.