Stan “The Annuity Man” Haithcock works hard advocating for the annuity industry and educating the general public about annuity misconceptions. In one of his latest articles for Marketwatch, “Busting the most enduring annuity myths,” he talked about six annuity myths that just won’t go away. The main problem with the annuity myths that are floating around and being spread as facts is that people are missing out on a product that might help them retire comfortably without the worry of running out of money in their lifetime. While annuities are not right for everyone, if those who could benefit from them avoid annuities because of an untrue myth, it could negatively affect their entire financial future.
The first thing that Haithcock wants the public to know is that all annuities are not the same. There are more than a dozen different types of annuities, so people who state that they hate all annuities are simply uneducated about how different all of the products are. Each annuity product has a different goal, whether it be creating lifetime income, protecting your principal or helping to pay for long term care. Once you know the different types of annuities and how they can be used, you will understand that all annuity products are certainly not the same.
Many people think that all annuities pay advisors a high commission, which is just not true. There are some indexed and variable annuity products that pay what is considered a high commission, but the majority of annuity products sold pay a low commission to the agents selling them. There are also no-load annuity products on the market that don’t pay any commission. Another myth is that all annuity products have high fees. This is likely because the annuities that have higher fees are the ones that are sometimes sold unethically and get the news attention. The average load annuity has an annual fee of 3%. Fees can increase as more riders are added onto your annuity product. Most annuity products do not have annual fees, a fact that more people would be aware of if annuity truths were spread.
In 2008, annuities started being marketed as products to use for market growth. But when annuity products were first introduced back in Roman times, they were solely used for lifetime income. Haithcock believes that is the best way to use annuity products to maximize your value. He is not a fan of using annuities just for market growth. While there is market growth potential with indexed and variable annuity products, the costs are higher and could eat into your returns. Indexed and variable annuities have benefits that match the needs of some consumers, so these products are worth consideration if you think they might be right for you.
There are state guaranty funds that can help return some of your money if the insurance company holding your annuity product goes out of business during the life of your contract. But state guaranty funds are not the same as FDIC insurance, a sometimes perpetuated myth. Don’t purchase a “cheap” annuity product from a low rated insurance company and rely on a state guaranty fund in case something goes wrong. Your annuity guarantees are as strong as your insurance company. The federal government does not guarantee annuities, so research financial strength ratings and choose an insurer that is financially strong.
The last myth busted by Haithcock is that you lose all of your money to the annuity company if you die. The annuity industry hasn’t done enough to spread the truth about what happens to your annuity money if you die prematurely. This only happens with a “life only” annuity, which is one type out of all of the annuity choices out there. If losing your money is a concern, you can build a guarantee into your annuity contract to make sure that doesn’t happen. Many annuities pay death benefits to your heirs and others offer period certain guarantees. A period certain annuity pays you money for a certain time frame and will pay your beneficiaries if you die before that time is up. Don’t fall for the commonly spread annuity myths. Speak with an expert at Annuity FYI to help clear up any questions you have about annuity products.