Despite recent work by many organizations helping to spread quality information about annuities, there are still some myths out there that need to be cleared up to the general public. Annuity products can be a valuable tool to help finance your retirement because of their guaranteed income that can be set up to last for as long as you live. Recently, Phil Simonides wrote an article for Marketwatch to help clarify some annuity information. In “5 myths about annuities to know before you buy,” he educated us about five of the most talked about annuity myths.
Perhaps the most common false annuity belief is that annuities are expensive. You cannot make a blanket statement that annuities are expensive before adding in some more information. What are you comparing the annuity product to? There are fees associated with most annuities, but there are also fees when selling stocks and other investments as well. Some annuities have higher fees than others, sure. There are also low-cost and even no-load annuities that don’t charge any fees. The true comparison comes when you analyze the fees with the benefits that you receive from an annuity. Annuity products create guaranteed lifetime income, something that is almost impossible to find with other investments. Most insurance companies offer annuity products that allow you to pick the benefits and riders that you want so that you aren’t paying higher fees for an option that you don’t need. It’s important to weigh the benefits of annuity products with your costs before saying that annuities are expensive.
The second myth floating around is that everyone should own an annuity. It seems like consumers often believe that the annuity industry is trying to push annuity products on everyone. There are people who simply don’t need an annuity. Some lucky people have more than enough guaranteed income set up through a pension that they don’t need anymore income. Recent college graduates young workers don’t yet need the risk protection that an annuity offers because they are far from retirement. But for those of us who are looking for guaranteed retirement income, tax deferral, and market downside protection, annuities are worth consideration.
Many workers think that retirees are the only group who should consider annuities. Although retirees are definitely one group who would benefit from annuities, those who are still in their working years and approaching retirement can also benefit from annuity products. Those approaching retirement need less risk and more stable investments. Annuities are a better alternative to bonds in this current low interest rate market environment. Workers who are approaching retirement and looking to re-balance their portfolios should look into using annuities to mitigate risk and create a retirement income stream.
Another annuity myth is that annuity experts put too much focus on the risk protection and lose focus on returns. Some annuities value risk protection over returns, some value returns more and others put a fairly equal focus on both benefits. There are many different types of annuity products that meet specific needs. Fixed, variable and fixed indexed annuities all pay returns in different ways and offer different types of principal protection. One type of annuity might not be right for you because of your individual preference on returns versus risk protection need, but that doesn’t mean that no annuity would work for you. You can also choose an immediate annuity or one that defers your income payments until later. You have to determine the balance that you desire between risk protection and returns. Don’t negate the importance of protecting your money from market loss.
Finally, it’s important for everyone to understand that there is no single solution for retirement planning. Some people look for a so-called “magic bullet” that will work for everyone, but that doesn’t exist. There are different kinds of investments and each type provides different benefits for your portfolio. Annuities are an important piece of the retirement planning puzzle because they guarantee return and offer risk protection. Consider all of the facts about annuities before making a decision about them based on a myth perpetuated by misinformation.
Written by Rachel Summit