Annuity Fact or Fiction: 3 Common Myths

Annuities are an often misunderstood financial tool. Many people assume that annuities are too complex to understand, or they may believe annuities are too costly. The truth is that annuities can be helpful financial tools when used appropriately. Without the right information, however, it can be difficult to decide whether an annuity is right for you.

Have you resisted the idea of exploring annuities as a retirement planning tool? If so, you may want to give them a second look. They’re not right for everyone, but they can be useful in some situations. Below are a few common misconceptions about annuities that aren’t always true:

Annuities are too difficult to understand.
Like most financial tools, annuities come in a wide range of types and variations. Some of them can be complicated and difficult to understand, but not all of them are. For example, a single premium annuity only requires you to contribute one lump-sum premium. After that, it will generate guaranteed* lifetime income based on your life expectancy and the amount of your contribution.
 
Other types of annuities are designed to meet other goals. Some provide a fixed interest rate, while others offer upside growth potential with downside protection. They may seem complicated at first, but an experienced financial professional should be able to walk you through all the components and help you reach an informed decision.

They don’t offer a death benefit.
If you’re concerned about leaving behind a legacy for your loved ones, then this myth may have turned you off to annuities. Although annuitized policies, like a single premium immediate annuity, may not offer a death benefit, other types of annuities do offer a death benefit for your loved ones.
 
For example, a deferred annuity usually allows you to name beneficiaries to receive a benefit after your death. All they have to do is fill out a death benefit form. After that, the amount they will receive is based on the terms of your specific policy.
 
Even annuities that typically don’t offer a death benefit, such as immediate annuities, can be structured so you can leave behind something for those closest to you. It is possible to add a period certain to the contract. If, for example, your period certain is 10 years and you pass away within those 10 years, your heirs will receive the payments for the remainder of the period.

They don’t have liquidity.
Again, this is true of some policies but not all of them. Deferred annuities usually allow you to withdraw 10 percent of your account value each year without facing a surrender penalty. Once the surrender period is over, it might be possible to take out as much as you’d like without facing any surrender charges.
 
Even the policies that don’t offer liquidity, like immediate annuities, can help bolster the liquidity of your other accounts. Since the immediate annuity provides you with income, you may not have to take distributions from your other assets.
 
If you decide an annuity is right for you, it’s a good idea to keep other liquid assets. You never know when you might be faced with an emergency expense. If you need quick cash, you’ll likely want to be able to access a source other than your annuity.
 
Ready to explore whether an annuity is right for you? Let’s talk about it. Contact us at Carstens Financial Group for more information. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
 

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*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.

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