Annuity Myths Debunked

Annuity Myths Debunked

Annuities are an often-misunderstood investment option. They can be complex, and offer many different features, which scares some away from utilizing them. In this article, we will go over common annuity myths and debunk them.

Myth 1: All Annuities Are the Same

Annuities have a large range of options. There are several different categories and subcategories. Such as immediate and deferred annuities. As well as fixed and variable annuities. You can also add rider on to create even more options. Additionally, each company will vary on what they offer. With so many options, you should be able to find one that works for you.

Myth 2: Annuities Have Low Rates of Return

Certain types of annuities have set interest rates. When you sign the contract, you are guaranteed to receive that interest rate for a set amount of time. You will have to limit your access to the money for that set amount of time. But in return you receive a guaranteed interest rate that is higher than what a savings account or CD offers but with the same level of security.

Myth 3: Annuities Have Very High Fees

The fees involved in an annuity will vary depending on the type of features it includes. Variable annuities tend to have higher feed since they include a management fee. It is important that you understand all the expenses involved before getting an annuity. When shopping around, be sure to get a detailed list of fees and expenses for each annuity.

Myth 4: The Insurance Company Keeps Your Money When You Pass

A very common annuity myth is that the insurance company always keeps your money when you pass. This is not entirely true. The payout after you pass will depend on the annuitization option that you choose.

For example: if you choose the life only annuitization option you will receive large payments during your lifetime, but when you pass nothing will go to your beneficiaries. However, other payout options will either give the remainder of your account to your beneficiary or continue your payments to them for a specified period.

Myth 5: You Cannot Access Your Money

During your accumulation period you will not be able to withdraw large amounts of money without having to pay a penalty. However, most annuities will allow you to take a 10% withdrawal each year without incurring a penalty. Some annuities also allow you to take penalty-free withdrawals if you develop a terminal illness or require long-term care.

Myth 6: Annuities Are Not Worth the Wait

With a deferred annuity you do not immediately start receiving income. Instead, you must wait for your accumulation period to end, which is usually several years, to start receiving income. But deferred annuities provide you with a guaranteed rate of return and guaranteed payments that you can factor into your retirement plan.

They are a good option if you are nearing retirement and you do not want to take risks in the stock market, but you do want higher rates of return than a savings account or CD.

Making a Choice

Now that you understand the truth behind these common annuity myths you need to analyze your finances and see if an annuity is right for you. If you are unsure, meet with a qualified financial advisor who can help you determine if one is right for you and what annuity you should choose.

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