Fact Vs. Fiction: Debunking Popular Annuity Myths


When you begin planning for retirement, you want to ensure that you have a steady stream of guaranteed retirement income coming in to help fund your goals for your golden years. You make plans to have steady streams of money coming in the form of investments, IRAs, and the like that you can tap into to make your dreams a reality. Annuities are designed to be a reliable, steady source of cash and alleviate any concerns you may have about outliving your assets. However, people sometimes dismiss annuities as a viable option due to the myths surrounding this particular financial product. To provide some clarity, we’ll break down some of the biggest myths involving annuities and help you learn everything you can to better plan for your retirement. 

Myth #1: Annuities Are Too Expensive

One of the biggest hurdles people face when deciding to get an annuity revolves around how much they cost. This particular myth centers on the idea that after you put down the lump sum that acts as the annuity’s money source, there will be annual and management fees that drive up the lifetime price of the annuity and make it untenable for most people. However, these types of fees are only associated with specific types of variable annuities, while fixed-rate annuities do not have any maintenance fees associated with them. 

Myth #2: You Should Buy An Annuity Closer to Your Retirement Date

This particular myth deals with people believing that to combat the market’s potential volatility tanking the savings tied with the annuity, they should only take one on when they are closer to retirement. However, depending on the type of annuity, you can counter that volatility and give yourself the peace of mind you crave with a deferred income annuity and a fixed deferred annuity paired with a guaranteed lifetime withdrawal benefit rider. Both options allow you to set a future date for the payments to begin and provide a guarantee that you have income for the rest of your life regardless of what the market does. Additionally, with the cost of living adjustments offered by these plans, you can have your income increase annually to help combat inflation. 

Myth #3: You Can’t Touch Your Money Once It’s in an Annuity

Most people think that when you invest in an annuity, you can longer access that money, and it sits there accumulating value. However, most annuities allow people to withdraw up to around 10% of their investment or the total earning on the contract — whichever is of greater value — during the first years of the contract. During this “surrender period,” you can still make withdrawals; however, there may be some tax implications for early withdrawals, so consult your tax advisor first. 

Myth #4: The Insurance Company Gets All the Money After You Die

You want to ensure that your loved ones are taken care of after you are gone. That’s why this particular myth has turned many off to investing in annuities. While the common thought is that the insurance companies benefit the most from your passing by taking the annuity’s total value, most deferred annuities do not function this way. These investments are designed to pass the account value on to your beneficiaries once you have passed. Some income annuities can also provide value to your heirs after your passing. With “life only” options, so long as you avoid the largest payout option, you can schedule income payments paid to your loved ones if you were to pass away unexpectedly. 

Based on your specific situation, one of the different types of annuities can help bolster your retirement portfolio with the right guidance and choices. Do you need help selecting the right annuity for your wealth accumulation plan? If so, contact Preservation Wealth Management to schedule your next appointment today!

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