Debunking Common Annuities Misconceptions

December 04, 2018

Developing a sound retirement strategy requires periodic reviews and analyses of projected income levels in order to maintain the lifestyle you envision. Annuities can serve as useful investments for retirees looking to generate guaranteed income. According to one investor poll, having a guaranteed income is a top priority of 56% of respondents.[i] Yet, most Americans don’t know how much monthly income they’ll have in retirement.[ii]

Having predictable income is important, but to build adequate levels to cover your retirement expenses you will need to align your retirement goals with your financial strategies. For many, annuities may be a worthwhile investment. However, investors who aren’t retired have mixed emotions about annuities: 51% of Americans are unfamiliar with them.[iii]

To help you better understand annuities, here are a few myths debunked:

Myth No. 1: Annuities are too expensive.[iv]

Investors can choose to buy different types of annuities. While investors pay fees to buy and sell annuities in the same way they buy stocks, annuities aren’t expensive. Some annuities have very low fees while no-fee annuities are also available. The annuities market continues to change, and many providers are looking at ways to lower investor costs. While you should carefully consider how much you want to spend when investing, annuities are not necessarily pricey.

Myth No. 2: Annuities are wasteful investments if you die early.[v]

Annuities are an insurance contract you buy. They can provide you with assurances of financial coverage for as long as you live, depending on how you structure the investment. Just as you protect your home or car with insurance by paying into a policy, you enter a similar relationship when purchasing annuities. For this reason, you can be confident in knowing you’ve protected yourself with the coverage you need to not outlive your money. If you anticipate having a shorter retirement lifespan, then annuities may not be right for you. Otherwise, annuities can be helpful investments for your retirement-income planning.

Myth No. 3: Your invested money goes back to the insurance company once you pass away.[vi]

Fortunately, this isn’t true. While different annuities can have different payout policies and options, you can designate a beneficiary for your policy, similar to investments like life insurance. Deferred annuities and income annuities have different beneficiary designations available to them, and some may incur an additional fee to add a beneficiary. But the option to name an heir to your investments is available, so you can pass on the money you’ve invested once you’re no longer here to receive the income.