Common Annuity Myths

While annuities are popular among retirees, they offer benefits for individuals at various life and investment stages. Here’s how annuities can cater to different financial goals:

• Deferred Annuities:
  These can serve as an excellent tool for retirement savings. Deferred annuities allow you to make tax-deferred contributions and enjoy tax-deferred growth over time.
  • Ideal for those who have maxed out contributions to their 401(k) or IRA.
  • Provides flexibility to accumulate funds now and convert them later into a guaranteed income stream for retirement.

• Immediate Annuities:
  These are a practical choice for those seeking guaranteed income right away. With an immediate annuity:
  • You contribute a lump sum upfront.
  • Payments start almost immediately, offering a steady income stream for a specific period or even for a lifetime, depending on your preferences.

Annuities aren’t just for retirees. Whether you’re saving for retirement or looking to secure income during retirement, annuities can play a vital role in achieving your financial goals. It’s never too early — or too late — to explore how an annuity could fit into your financial strategy.

A common criticism of annuities is that they don't offer the same high returns as traditional market investments. However, this perspective overlooks the fact that investments serve different purposes based on individual goals. Here’s how annuities can complement or even enhance your financial strategy:

• Fixed annuities are designed to hedge against market risk.
• Your principal is not exposed to the fluctuations of the stock market, providing a guaranteed rate of return.
• This makes fixed annuities a reliable option during market downturns, offering protection and steady growth even in volatile conditions.

• For those who want to participate in market growth, variable annuities offer the opportunity to invest in equity markets.
• Like mutual funds, variable annuities allow for potential gains, but they also come with the risk of principal loss.
• This option may suit investors seeking long-term growth who can tolerate market ups and downs.

• Structured annuities combine growth potential with downside protection.
• These products provide limited market exposure while incorporating features that cushion against significant losses, offering a middle ground between fixed and variable annuities.

Annuities aren’t inherently better or worse than market investments — they’re simply different. The right choice depends on your risk tolerance, income requirements, and overall financial goals. Annuities can provide a unique combination of stability, growth potential, and protection that complements other investment strategies, ensuring a diversified approach to achieving financial security.

While it’s true that some annuities come with fees, the costs can vary significantly depending on the issuer and the specific type of annuity. Here’s a closer look at the reality of annuity costs:

• Structured Annuities:
  
  • Many structured annuities may have little to no fees, especially if funds remain in the indexed accounts until maturity.
  • These products can provide a cost-effective way to access both market-linked growth potential and downside protection.
• Value vs. Cost:
  
  • The benefits annuities provide — such as tax-deferred growth, guaranteed income, and protection against market downturns — often outweigh the associated costs for many individuals.
  • Compared to fees for other financial products or managed investment accounts, annuity fees may be competitive when you consider the added value they deliver.

Annuities aren’t inherently “overpriced.” The fees associated with an annuity depend on the specific product and its features, and they’re not necessarily higher than fees for other investment options. Evaluating the value of an annuity means looking beyond costs to consider the security, growth potential, and income guarantees it offers.

A common misconception about annuities is that they lock up your money, making it inaccessible during the surrender charge period. While it’s true that many annuities include surrender charges for early withdrawals, there are often built-in provisions that provide flexibility:

• Penalty-Free Withdrawals:
  
  • Some annuities allow investors to withdraw up to their initial investment amount without penalty, even during the surrender charge period.
  • Others offer the option to withdraw a percentage of the annuity’s value — commonly up to 10% annually — penalty-free.
• Post-Surrender Flexibility:
  
  • Once the surrender charge period ends, you gain full access to your contract value without any additional fees or penalties.
• Customizable Features:
  
  • Depending on the annuity type and provider, you may also find riders or options that enhance liquidity, such as hardship waivers for certain life events or health conditions.

The level of liquidity and flexibility in an annuity depends on the specific contract terms and whether you're within the surrender charge period. For those who prioritize liquidity, selecting an annuity with flexible withdrawal options or shorter surrender periods can help ensure the product aligns with your financial needs.

Annuities can play a key role in a tax-efficient investment strategy, offering benefits similar to other retirement accounts:

• Tax-Deferred Growth:
  
  • Most annuities allow your investments to grow on a tax-deferred basis.
  • This means you fund the annuity with pre-tax dollars and pay taxes only when you make withdrawals, potentially allowing your savings to compound more effectively over time.
• Tax-Free Withdrawals with Roth Accounts:
  
  • If you purchase an annuity within a Roth IRA or Roth 401(k), you may benefit from tax-free withdrawals, provided you meet specific requirements.
  • This can make an annuity an attractive option for tax-conscious investors looking to diversify their retirement strategy.

Annuities are as tax-efficient as other tax-advantaged retirement accounts, offering flexibility for tax-deferred or tax-free growth depending on how they’re funded. Incorporating annuities into your financial plan can help optimize your overall tax strategy while providing valuable income and growth benefits.

It’s a common misconception that annuities forfeit your money to the insurance company when you pass away. While some immediate annuities may stop payments upon the purchaser’s death, many annuities are designed with death benefits to ensure your legacy is protected:

• Standard Death Benefits:
  
  • With structured, fixed, or variable annuities, your beneficiaries typically inherit the remaining value of your annuity.
  • Most annuities guarantee that your beneficiaries will receive at least the amount you initially invested, adjusted for any prior withdrawals.
• Enhanced Death Benefit Options:
  
  • Many annuities offer optional death benefit riders (for an additional cost) that maximize the amount passed on to your loved ones.
  • These options provide flexibility to align your annuity with your legacy and estate planning goals.

Annuities can be structured to protect your wealth and ensure it benefits your loved ones. If leaving a legacy is important to you, explore annuities that offer customizable death benefits to suit your financial goals and wishes.

Choosing the right annuity can feel complex, but you don’t have to navigate it alone. We’re here to help you understand the different types of annuities and determine whether they align with your unique needs and objectives.