What is the main problem with any investment that guarantees returns, such as annuities?

They’re always a tradeoff. Guarantees come with a cost. Typically, the lower the risk, the lower the return.

What does the Bible say about this?

You won’t find the word “annuities'' in the Bible, but there is a biblical principle to guide us on this topic. The Parable of the Talents found in Matthew 25 reveals that one of the servants buried his talent in the ground. The master asked why he did that and the servant said he was afraid, and the master was displeased.

All too often, annuities are marketed and purchased based on fear.

What should we look out for?

If a salesperson is ONLY selling annuities, rather than a full suite of investment options, that’s a potential problem. If he or she only has a square peg to sell, they’ll always try to sell a square peg, regardless of whether the hole is a square, a circle, or a triangle.
Also, if an annuity salesperson is trying to get you to put a large percentage of your money into an annuity? If so, watch out! It’s always a good idea to diversify.
And do you feel like someone is trying to sell it because it's in your best interest? … or because they’re trying to win a contest? Listen to those spirit checks if you feel like they’re not acting in your best interest.

There are three different types of annuities: Fixed, Indexed, and Variable.

Fixed annuities do have some advantages in an era of elevated interest rates. You usually get a higher guarantee than in other types of annuities, at least for a period of time.
Variable annuities have a higher potential upside, but a higher potential downside as well.
Indexed annuities are a product where you really need to understand the guarantee and proposal. It's difficult to understand what the guarantee really is because there is risk involved that may not be apparent. Indexed annuities look good in brochures but once you "bite into it," it can disappear like cotton candy. It's important to understand how the annuity works and whether you will actually make money if the market goes up.

Whatever the annuity, it always makes your money less liquid and available. And if you’re going to leave that money alone for a long period of time, why not invest in the things the insurance companies are investing in (the market)? Just take a long-term approach and diversify properly.

There are some limited situations in which an annuity makes sense. That could be a situation in which you’ve exhausted other investment options.

Seek out a Certified Kingdom Advisor (CKA®) if you want to evaluate annuities for your needs.

On Today’s Program, Rob Answers Listener Questions:

I’m an 82 year-old widow and live on a very low income of just over $1,000 a month. I have a little bit of savings in case of car problems but I feel really lost when it comes to my finances. The only thing I own is my home. However, I need to know how to make out a will and an estate plan but I can’t afford an attorney or lawyer. Is there someone out there who can help me with all of this?
I’ve got a 401(k) in the previous company that I worked for that has around $2,000 in it. I’ve been really wanting to change it so that it’s invested in a biblically sound company and they’re telling me that I can’t do that because it was set up through my company that I work for. I was just wondering if I need to pull the money out and reinvest it in an IRA or something so I can have more control over where it goes?

Resources Mentioned:

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Nancy Alderman, MES, founder and president of Environment and Human Health, Inc.