We at Annuity FYI will be the first to admit that annuities are not right for everyone. But annuity products can offer great benefits and be an excellent addition to many retirement income plans. In Time’s Money Magazine, Walter Updegrave offered up the important things to consider before making up your mind about an annuity product. His article, “3 Good Reasons to Say No to an Annuity – And 3 Bad Ones,” says to make sure that you understand the income potential available with annuities before dismissing the products.
Thinking about buying an annuity may stir up some unwanted thoughts about your own mortality. This is not a good reason to avoid purchasing an annuity product. We get it, no one wants to consider their own death and annuities make you think about your life expectancy. But we will all die at some point and making sure that we live comfortably while we are here is the most important thing. Recent studies have shown that mortality salience, or being aware of your own impending death, keeps a lot of people from buying an annuity product. Instead of worrying about how long you have left to live, look at an income annuity purchase as a way to ensure that you get the most out of your money while you are still living.
Here’s another deficient reason for ignoring the benefits of annuities. Some people are overly concerned with losing out on their annuity purchase if they die before receiving all of their money back in payments. This is only a concern with someone in poor health who doesn’t expect to live very long, someone who probably isn’t right for an annuity anyways. For people who are pretty healthy, an annuity purchase is insurance against running out of money during their lifetime. An annuity allows you to get the most value and income from your savings and guaranteeing your income even if you life a very long life. There will be people who die before receiving all of their money back, but it’s important to look at annuity just like you look at other forms of insurance. Homeowners, car and health insurance are still important protections, even if you don’t get all of the money you put into them back from a claim.
The third bad reason for not buying an annuity is because you can’t easily access that money once you’ve bought an annuity with it. Giving up access to your lump sum of money allows you to get the highest possible income payments from your immediate or longevity annuity. Your annuity money should be meant only to guarantee you lifetime income, not to be used for emergencies or unexpected occurrences. This is why you don’t purchase an annuity with all of your savings and keep other money in liquid assets elsewhere. Use a portion of your money to guarantee income with an annuity product and invest the rest of your money in stocks and bonds for growth potential and funds for your heirs.
In addition to the three reasons that you shouldn’t use for not buying an annuity, Updegrave also gave three valid reasons when an annuity might not be right for you. Some people already have enough guaranteed income from their projected Social Security payments and a company pension. If you already have enough income guaranteed through these sources to pay for your living expenses, you might not need an annuity product. Some people are lucky enough to have a lot of money in their retirement nest egg. If you have more than enough savings to be at risk of running out of money in your lifetime, then you wouldn’t likely need an annuity. Use a retirement income calculator to make sure your withdrawals aren’t close to putting you at risk of running out of money if you aren’t sure. Finally, don’t buy an annuity if you aren’t convinced that it’s the right product for you and your own personal situation. If you are having doubts about annuities, speak with an expert so that they can help you determine if an annuity product is right for you. Sometimes you need more information about annuity benefits before making a fairly permanent decision.
While there are some good reasons for not buying annuities, there are also some weak reasons why people don’t buy an annuity product. Before you miss out on the benefits and guarantees that come with annuities, make sure that you aren’t using faulty reasoning to make your decisions.
Written by Rachel Summit