This is very true when it comes to retirement and guarantees from annuities.
More than half of the adults polled for a 2016 survey done by TIAA, the main goal of their retirement savings is to provide an income during retirement. Yet when asked if they were considering an annuity – less than half of them said yes. Are you going to risk your retirement future in ‘misinformation’, on something you ‘believe’ to be true or something you heard that is not true? Here are some untruths that are ‘believed’ to be so. There are entities that have a vested interest in keeping you ‘confused’. If having money that lasts the rest of your life is important read on.
1: I will never be able to get my money out of an annuity.
There are different types of annuities, for different needs. The type utilized by most baby boomers today, a Fixed Index Annuity allows anywhere from a 10% ‘penalty free’ withdrawal annually, up to a 100% return of the money you put in… at any time.
2: When I die, the insurance company will keep all my money.
This is another example of the old-school annuity, not the new more effective and flexible type. Though you can still buy this type of annuity, after doing their research 55 and uppers typically find that the new version is better. Any many remaining in the account at death goes to the heirs you designate.
3: Annuities are quite expensive!
Yes, if it is a variable annuity, the fees can be quite high. These are often sold as safe too… and they are not. Again, typically not the best choice for retirees that are looking for principal protection.
Fixed indexed annuities have NO FEES unless you choose the guaranteed income route. These income riders that can guarantee you never run out of money for 1%, sometimes even less. It is important to find out what is true and believe that! Be careful to nut be sucked into paying fees for features or benefits that you don’t really need.
4: If there is an emergency, I cannot get to my money in an annuity.
What we are talking about here is liquidity. I partially addressed the issue of liquidity with the first ‘untruth’. Your account value is always available, subject to the terms. Yes, you might have to pay a penalty if your contract has a 10% ‘free withdrawal and you want 20% in one year. That said, depending on how long you have had the annuity and the growth, you may well be able to get all the money you put in and some, even after paying the penalty. Your money is NOT LOCKED UP.
5: Annuities are just too complicated.
Yeah, it certainly sounds that way, doesn’t it? All financial contracts and explanations are complicated. They are drawn up by attorneys, not only to explain how the investment works but also to protect the institution from lawsuit. Ah, have you ever tried to read a prospectus for the mutual funds you own? It always amazes me that people risk losing half of their money with little or no understanding, but when it comes to contractually guaranteeing ‘they don’t ever lose another penny,’ they freak out. One of those things that make ya say, “huh”? Yes, understanding any surrender fees, crediting strategies, penalties, income riders can be a challenge, but that does not mean they do not work the way they are designed. The guarantees are… ah, GUARANTEED. Even with an income rider, it’s not that hard to understand how they work, if you ask the right questions and have a patient financial professional that understands the value of [you] understanding.
To use another analogy, annuities are like cars – you don’t have to know how all the inner gears, on board computers, energy transmission systems, fuel system, etc. work in order to be able to get safely where you want to go. An annuity can help you get safely to the end of your life with sufficient and ‘certain’ income. Do not let what you think you know keep you from the truth.