Annuities might be one of the most misunderstood financial vehicles out there. They’re often considered to be too complex and restrictive. Unfortunately, many retirees don’t consider annuities as a retirement planning tool because they don’t fully understand how annuities operate.
If this sounds like you, then you could be missing out on a valuable financial tool that can generate income and help you manage downside risk in retirement. While they’re not right for everyone, they can be helpful in certain situations.
The only way to know if an annuity is right for you is to look at all your options and see if they meet your needs. Below are a few common myths often associated with annuities. If any of these have kept you from looking into the possibility of annuities, then perhaps it’s time to reconsider.
They’re too complex.
Just like other financial tools, an annuity can be complicated. But that doesn’t mean they’re all complicated. In fact, there are some fairly simple, straightforward annuities that can be easy to understand and evaluate. One example of a simple one is a single premium immediate annuity. With these, you’ll contribute a single lump-sum premium into the annuity contract. After that, the annuity generates a guaranteed* lifetime income stream based on your life expectancy and the amount of the premium.
Other annuities may be slightly more complex. However, just because a financial tool is complicated doesn’t mean it won’t benefit you. A financial professional can help you look at all your options and review them with you. This can help you decide which annuity, if any, is right for your needs and goals.
Your loved ones won’t get a death benefit.
Many people assume that when they purchase an annuity, they’re also cutting their loved ones out of any future benefit. Although this could be true for some types of annuities, it’s not necessarily true for all of them. Deferred annuities, for instance, do offer a death benefit, which can be claimed by simply filling out a death benefit form. The amount of the benefit is often based on the terms of your specific policy.
Even annuities that don’t usually offer death benefits can be structured so you can leave something behind for your loved ones if you pass away earlier than expected. Immediate annuities can be created with something called a period certain. If you die within the period, your stated beneficiaries will get the payments for the remainder of the period.
They don’t offer liquidity.
It is true that annuities are often less liquid than many other types of financial tools. In many annuities, however, you do have some access to your funds and a partial amount of liquidity.
For example, a deferred annuity will permit you to withdraw up to 10 percent of your account value each year without facing a surrender penalty. After the surrender period is over, you’re free to withdraw as much as you want without facing surrender charges. You could still face taxes or early distribution penalties, but you won’t face surrender penalties once the surrender schedule is over.
Immediate annuities, on the other hand, typically do not offer liquidity. However, the income from the immediate annuity could help you preserve liquid assets in your other accounts. If you think an annuity is right for you, it’s usually a good idea to keep liquid assets elsewhere. This can help you cover emergency expenses you might encounter during retirement.
Ready to explore whether an annuity is right for you? Let’s talk about it. Contact us at Baacke Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
*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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