8 Things To Know About Annuities

Be mindful of the messenger that positions certain products or services as “always” bad or “always” perfect.  The fact of the matter is there are no “bad products” or “perfect products”.   The right product is one that aligns with your goals and objectives.

The Institute of Financial Wellness believes when it comes to financial decisions; “Never Say Never – Never Say Always…It Depends.”   There is a lot of misinformation about annuities and this article helps clarify when they make sense and when they don’t!

4 Reasons Why Annuities May Make Sense:

1. Annuities protect principal. Both fixed annuities and fixed index annuities offer guarantees you will never see a negative return on the money deposited. Fixed annuities offer a fixed interest rate while fixed index annuities guarantee you won’t lose principal and provide upside potential based on different indexes.
2. Certain features or “riders” on an annuity contract will guarantee lifetime income each month for either an individual’s or joint life. This provides comfort and security to many retirees so they know their living expenses will be covered each month.
3. Structured annuities offer “buffers” which give you some downside protection as well as upside potential. These annuities are not as “safe” as fixed index annuities but they often offer greater upside potential.
4. A nice feature of all annuities is the interest and growth are tax-deferred.

4 Reasons Why Annuities May Not Make Sense:

1. Insurance companies provide guarantees based on purchasing certain bonds and options with your deposit; therefore there are accessibility and liquidity restrictions.  Generally speaking, access to 10% of the deposits are available after the first year, but if you need to access the principal beyond the 10% there is often a penalty (anywhere from about 6-10% depending on the terms)
2. Some variable annuities with additional riders could have as much as 3%-4% annual operating expenses. Considering an average mutual fund will have between 1% – 1.5% of total operating expenses this extra fee should only be paid if the riders are fully understood and valued by the annuity purchaser. As the saying goes, “price is only an issue in the absence of value.” For some people, the extra fees may be worthwhile, but if you don’t see value in the annuity rider’s benefits you should not buy the annuity.
3. If you “annuitize” (fully convert the principal to a guaranteed stream of income for life) you will lose access to the principal and possibly prevent the remaining money from going to your beneficiaries. There are other ways to secure lifetime income without having to “annuitize” the contract,  and it could be a disadvantage if you have a strong desire to leave your assets to a beneficiary.
4. The general consensus is that you will not make as much money in an annuity as you will in mutual funds or stocks. However, there is no principal protection in stocks and mutual funds which is why it may make sense to keep a portion of your money in annuities.

Learn More About IFW’s Retirement Planning Education Services

It’s never been more important than now to mitigate market risk, devise a tax reduction game plan, and learn strategies for the most retirement income.  If you’re interested in paying less or possibly no tax, increasing retirement income, and never running out of money in retirement, make sure to attend the next live IFW Retirement Roadmap Webinar.  It’s FREE & happens every Wednesday at 7 PM EST.   Get all your retirement questions answered during the live Q & A.  Every attendee also has the opportunity to receive their own customized retirement roadmap.  REGISTER FREE NOW!

Please remember, be mindful of the messenger that positions certain products or services as “always” bad or “always” perfect.  The fact of the matter is there are no “bad products” or “perfect products”.   The right product is the one that aligns with your goals and objectives

The IFW provides valuable financial education, resources, and services that help people live their best life. 

The Institute of Financial Wellness believes when it comes to financial decisions; never say “Never” never say “Always”…It Depends.