Annuities vs. Bonds as Part of the Retirement Portfolio

Referenced in the Wall Street Journal article entitled “The Case for Replacing Some Bonds With Annuities”, Attorney Chris Berry discusses Annuities and Bonds as part of the Retirement Portfolio.

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.

Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.

With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.


For more info visit:


Episode Transcript


Old School Thought

Hey, this is Chris Berry with Castle Wealth Group. Today I’m going to talk about an article I read in the Wall Street Journal that talked about how many retirees are looking at annuities versus bonds as part of their retirement portfolio. If you like this information, please make sure to subscribe to our YouTube channel.

Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He has been featured in publications such as Forbes, Kiplinger’s, Crain’s Detroit, and more. He’s the host of the weekly radio show and podcast, The Chris Berry show. He’s a national thought leader as it relates to retirement and legacy planning and has authored the Amazon best selling book, The Caregiver’s Legal Guide.

I saw this recent Wall Street Journal article that reinforces something that I’ve seen for quite a while now. With bonds going down, in terms of interest rates, they’re not the great hedge that they have been versus equity. Kind of the common old school thought was, you put together a portfolio that has a mixture of stocks and bonds, with the idea that if stocks go up or bonds might go down a little bit, but if stocks go down, bonds will go up, so it’s kind of a hedge against volatility.

There’s been recent articles within the last couple years in studies that show the correlation isn’t as inverse as we would like, especially with this low interest rate environment that we have right now. For example, as I’m recording this I have clients who have mortgages that are in the twos, in the low threes, which is really, really low, and so it’s good in terms of refinancing your house but it’s harmful to your retirement portfolio because those bonds are going to be under-performing.

That’s where this Wall Street Journal article, and one of the strategies that we can employ, is looking at annuities as a bond replacement. Now, saying the word annuity, it’s a charged word for a lot of people because there’s a lot of people out there all they are are annuity salesman.



Annuities can be overly marketed and overly sold, especially by these low level annuity salesman who hold themselves out as financial planners, where any problem they see, their only tool is a hammer, the annuity, and so anytime they see a nail they use that annuity, they use that hammer. Versus a holistic planner where we look at what’s in the market. We look at stocks, and bonds, and mutual funds, life insurance.

Understand that annuities are a tool and our approach to this, first figure out what is your goal, figure out the best strategies, and then discuss tools. Versus a lot of these annuity salesman, it’s completely the other way around. Their approach is, “I want to sell you an annuity, let me figure out a strategy to help you sell the annuity, and then we’re going to squeeze that into whatever your goals are.”

I completely get it, annuities are a very charged subject and a lot of people either love them or hate them, but my view is they’re not good or bad, they’re just a tool. There’s two ways that annuities can be a good bond replacement in a retirement portfolio. The first way is looking at annuities as an income source. This is something that the Wall Street Journal article really talked about, is the idea that with annuities what you can do is guarantee a certain level of income, which means that maybe we need to draw less of those retirement accounts as the market’s going up and down and looking at it as a bond replacement, that if we have more income coming in from social security, pensions or now adding annuity as a third leg of that stool, then we’re going to have less need to draw down on our assets.

That’s one approach where an annuity may make sense as a bond replacement. The other is a more straightforward approach where we look at annuities and we look at the rate of return a fixed index annuity can get, with downside protection provided by the insurance company and you get the growth potential potentially even uncapped where you’re just looking at a participation rate; where if the market goes up, say 10%, you might get 5% of the upside but if the market goes down you don’t lose anything. It provides a nice floor so if the stocks are going like this your annuity is either going like this or going like that.


Catching the Upside

You’re catching the upside on a annual basis or bi-annual basis but you don’t have to worry about any of the downside. It’s kind of like going to a blackjack table and you’re either going to draw, meaning if the market goes down or the market remains the same, or you’re going to win. If that was the case, how long would you stay at that blackjack table? Probably quite a while if there’s no chance for you to lose.

Now, the trade-off is a little bit of a liquidity issue. If it’s something that you were going to move money into right away this part of the portfolio you wouldn’t want to draw all the money out right away. That’s where we get into financial planning and understanding which assets we’re going to draw down first.

If you do subscribe to that 60/40 model of the investment portfolio, 60% stocks, 40% bonds, there’ve been a lot of studies and articles, even in the Wall Street Journal, talking about how that might not be the best approach because bonds are under-performing, so maybe let’s look at a asset that is performing better than bonds for that 40%. Just an idea.

This has been Chris Berry with Castle Wealth Group. If you find this educational, please make sure to subscribe to our YouTube channel. Thank you so much.

Castle Wealth Group has clients across the nation and helps families plan, protect, and preserve what is important by creating a retirement and legacy blueprint.



Castle Wealth Group Legal in Media

Send Us a Message