Author: Rob Sevilla
Agency: Agape Insurance & Financial Group, Tupelo, MS
If you search the internet for retirement savings advice, you will likely find strong opinions. But when it comes to the truth about annuities, it is hard to separate fact from fiction. Some people love the guarantee of safety, while others claim they “hate annuities.”
At Agape Insurance, we believe that annuity myths shouldn’t keep you from financial security. The reality is that many annuities are powerful tools designed to provide a steady income stream and protect your principal.
Below, we are busting the top 5 common annuity myths to help you learn the truth. We will look at fixed index annuities, costs, and whether annuities can provide the stability your retirement plan needs.
Annuity Myths vs. Reality: Are Annuities Only for Retirees?
Myth #1: Annuities are only for retirees or older adults.
The Truth: While income annuities are popular for those already retired, deferred annuities are powerful accumulation tools for younger savers.
You donโt need an annuity just because you are 65. In fact, purchasing a deferred annuity in your 50s allows you to defer taxes on your growth. This tax benefit allows your money to compound faster than in a taxable account. Annuities can help bridge the gap between your working years and Social Security.
Whether you choose fixed annuities for safety or indexed annuities for growth potential, an annuity is a long-term vehicle that can benefit you long before you quit working.
Does the Insurance Company Keep My Money?
Myth #2: If I die, the insurance company keeps my money.
The Truth: This is one of the most persistent common myths. It stems from old-school “life-only” payouts.
Today, most annuities offer a death benefit. If you pass away before you receive all your money, the annuity contract ensures the remaining balance goes to your beneficiaries, not the issuing insurance company.
This makes annuities a valuable tool for estate planning. You can designate a beneficiary to receive the account value, avoiding the hassle of probate in many cases. The truth behind this myth is that you have control over where your legacy goes.
Do I Lose Control of My Money in an Annuity?
Myth #3: Once I purchase an annuity, I canโt touch my cash.
The Truth: Annuities are designed for the long term, but they are not a prison for your money.
Most annuity guarantees allow for a “free withdrawal” amount annually (typically 10% of the value). While it is true that withdrawing more than that during the surrender charge period can trigger a surrender charge, liquidity options exist.
Also, withdrawals are taken prior to age 59ยฝ may be subject to a 10% federal penalty, similar to a 401(k). However, for retirement income planning, the ability to turn on a guaranteed lifetime income stream often outweighs the liquidity restrictions for a portion of your portfolio.
Investment Returns: Can Annuities Compete with Market Gains?
Myth #4: Annuities have terrible returns compared to the market.
The Truth: This depends on the type of annuity. Fixed annuities offer a set rate, often higher than bank CDs. However, fixed index annuities (or indexed annuities) offer a unique middle ground.
Indexed annuities allow you to earn interest based on the performance of an external index (like the S&P 500) without actually being in the market. If the index goes up, you share in the market gains up to a cap. If the index crashes due to volatility or market volatility, your rate of return is simply 0%. You lose nothing.
Fixed index annuities protect your principal from volatility. While variable annuities are fully invested in the market (and can lose money), indexed annuities provide a safety net.
How to Determine If an Annuity Fits Your Financial Plan
Myth #5: Annuities are complex and expensive.
The Truth: Some variable annuities have high fees, but many fixed and indexed annuities have low or zero annual fees.
When you sit down with a financial professional, we help you look at your total financial situation. We explain how annuities actually work, focusing on the claims-paying ability of the issuing insurance company.
To determine if an annuity is right for you, ask:
- Do I need guaranteed income that I cannot outlive?
- Do I want to protect my retirement savings from a crash?
- Am I looking for a tax benefit on my growth?
Annuities may not be for everyone, but for those seeking a steady income and safety, they are often the missing piece of the puzzle.
Learn how annuities can stabilize your portfolio. Different types of annuitiesโfrom immediate annuities to deferred income annuitiesโsolve different problems.
Don’t let common annuity myths scare you. Annuities come with guarantees backed by the claims-paying ability of the carrier.
Rob Sevilla and the team at Agape Insurance are here to give you the annuity facts. We will help you sort through annuity myths and get the truth.
Call us today at 662.260.5188 to discuss if a Guaranteed Lifetime Income strategy is right for you.
Disclaimer: Agape Insurance & Financial Group does not provide tax or legal advice. Guarantees are based on the claims-paying ability of the issuing insurance company. Fixed Index Annuities are not stock market investments and do not directly participate in any stock or equity investments.