When shopping for an annuity you’ll likely discover mountains of information, many different points of view, and even myths and misconceptions. How do you sort it all out? To help you make better decisions about what’s right for you, here are the facts behind some of the most common annuity myths and misconceptions.
Myth #1: All Annuities have high fees
Truth – Some annuities have high fees. There are thousands of different annuities and each of them is unique. Some are more expensive than others and a lot of them offer different benefits. Variable annuities tend to be more expensive than Fixed Index Annuities. The more features that an annuity is equipped with the more expensive it will be. Some annuities have no fees at all yet still offer tax deferred market linked growth.
Typically features that come with fees are guaranteed minimum death benefits, and income guarantees, none of which may be available with other investment products. Because investors are transferring their risk to the insurance company, fees are charged for this added value. Many investors find the trade-off between higher fees and higher value to be a sensible one.
We believe that investors should only pay for features that they need. Make sure you have a candid discussion about fees with your Knight Financial Professional about the annuity features you actually need.
Myth #2: If I die, the Insurance Company gets all my money.
Truth – With today’s annuities, in most cases this myth is no longer true. Depending on the product your beneficiaries may get the current cash value of your contract. In other cases, investors may choose to opt for a contract with a guaranteed minimum death benefit that will ensure your beneficiaries either get the full account value, or the cumulative purchase payments adjusted for withdrawals, whichever is higher.
In addition, many annuities offer optional spousal benefits, available for an additional fee, that provide for the surviving spouse to continue receiving lifetime income.
To help protect your money after annuitization, many annuities offer a guaranteed payment period that ensures any remaining payments due will continue to your beneficiary.
Myth #3: Annuity Returns are Not Guaranteed
Truth – This is partially true. Annuities do not offer guaranteed cash returns, but some annuities do offer guaranteed benefits ranging from guaranteed income to principal protection. Guaranteed income benefits will generate a guaranteed return depending on life expectancy. You should consult with your financial professional to understand the exact benefits and guarantees that are associated with a particular annuity.
Myth #4: “I can easily create lifetime income from my retirement accounts”
Truth – You can try to create an income stream from your retirement savings. But your investments may not perform as expected, or, if you live longer than expected, you may either need to decrease your income and adjust your investment mix, or risk running out of money. An annuity with an optional living benefit, on the other hand, can provide guaranteed income for your entire life. And if you co-own an annuity with a spouse, your annuity can be structured to guarantee income for the duration of both your lives.
Myth #5: With an annuity, I lose control of my money.
Truth – With previous generations of annuities, you needed to give up control of your money in return for lifetime income. However, some of today’s annuities are far more flexible, giving you the option of withdrawing a portion of your funds before electing income, often without a penalty. Please consult with your Knight Financial Professional on the exact benefits and restrictions of your particular annuity.