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Blasting 8 Annuity Myths

Where are retirees putting their money?  Currently, about $2.7 trillion sits in 401(k)s, while only $10 billion of fixed annuities were sold all last year.  Fixed immediate annuities will guarantee you a set income for life so here are 8 reasons people are not buying them and the reasons they should be, according to Scott Wooley at Forbes.com.

  • Your financial analyst may not be selling you a fixed annuity because they won’t make much money off of you.  Bad for them, good for you.  Wooley says: “once a retiree buys an annuity, all he has to do is sit back and cash checks for the rest of his life.”
  • People aren’t scared to live a long life.  Basically, since annuities pay money out for the remainder of your life, they are insurance against outliving your savings.  While people buy life insurance because they are scared to die, most people are not scared to live, but they should be prepared to live long.
  • Following the prior point, retirees aren’t aware of their odds.  Odds are that they will live a long life.  More than 20% of 65 year olds will live into their 90’s and those living to age 100 are becoming commonplace.
  • The stock market is calling out to people.  Unfortunately, if your retirement comes in a time like we are now living in, you are out of luck with a portfolio that has lost value.  Fixed annuities are a guaranteed income.
  • Since women receive less per check than men do, it looks like they are getting shortchanged.  There is good reason though.  On average women live 3 years longer than men so they will collect money longer, adding up to equal or greater than what men will receive.
  • It looks more expensive to purchase a couples’ annuity.  It actually makes sense though because whichever person lives longer continues to receive checks throughout their life.  With 2 people involved, there is a greater chance that at least one will live past age 90.
  • Everyone wants to leave something to their heirs.  If a retiree annuitizes only the portion of money they will need for expenses throughout retirement, they can leave the remainder of their savings to heirs.  They can also purchase a “period certain” annuity that will continue to payout for a fixed time even if you die before that.
  • No one wants to entertain the thought of living in poverty if they run out of money because they lived too long.  But it’s better to think about that possibility and plan for it now!
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