6 Common Myths about Annuities
Greetings, Annuities are often misunderstood. Many people find it difficult to understand and navigate these insurance products due to misinformation, rumors, and myths.
As you can see in the diagram above annuities are in the middle of the risk spectrum and are considered predictable growth instruments. Let’s tackle some common questions and misconceptions.
1. All annuities the same
Although annuities share many common attributes, each annuity type has its own set of rules. The three basic types of annuities are fixed annuities, variable annuities, and fixed index annuities. The biggest difference is how each credits earnings.
2. All annuities have fees
Most fixed and fixed indexed annuities have no maintenance fees or annual fees while variable annuities have varying fees depending on the type of the annuity and additional benefits it may provide.
Annuities can offer a variety of features that aren’t typical of other retirement income options, like tax deferral, income guarantees, guaranteed minimum values, and/or a guaranteed minimum death benefit.
3. You can't withdraw money from an annuity
Many annuities give you the option to withdraw a portion of the contract without a penalty. Some annuities may require a waiting period before you can access the full value of the annuity. Rules regarding early withdrawal vary — you would want to check on specific features with your financial professional.
4. The insurance company keeps your money if you die
Some people believe an insurance company will keep the remaining annuity value upon death. If you want to ensure your beneficiaries receive your remaining annuity value when you die, you can choose an annuity payment option with a refund feature. In general, this type of annuity payment will be lower than a “life-only” payment, but it ensures any balance that remains between the sum of the payments and the account value is paid to your beneficiaries.
5. Annuities are just for older people
Annuities can be excellent tools for accumulation and income, no matter your age. Many young workers are using annuities as a tax-deferred way to save for their future. Some people choose to wait until they are nearing retirement to purchase an annuity.
6. If I have a well-rounded portfolio, I don't need an annuity
Annuities like fixed index annuities are becoming a household term as a new generation of savers continue to be drawn to growth potential and protection from market downturns. The opportunity for guaranteed growth and income for life should be considered as a way to add stability to any retirement portfolio.