When talking annuities with people, they tend to love the concept of guaranteed monthly income coming their way, but opt to not get involved when presented with the opportunity. Why might that be? Often, the case usually boils down to myth. People collect misinformation and it soon becomes facts in their heads.
It’s high time to dispel a few of those myths because annuities might be a perfect addition to your retirement portfolio. Instead of holding onto what you think is true, take a look at why some of the common perceptions about annuities are plain old bunk.
Annuities Aren’t a Good Plan
That’s simply not true. Sure, no plan is perfect for every person. I’ve discussed that before and you will understand this pretty soon after starting your own research. However, with 2014’s new guidelines, annuity usage expanded in 401(k) plans. In doing so, the option became a bit more attractive to investors that seek to amass tax-deferred savings. Additional benefits include protection for your previously saved income while providing yourself a steady income stream beyond social security.
Another common misconception is that all annuities have fees. While that may be true for some, many annuities come with no fees. If you’re searching for a no cost option, consider a fixed or immediate annuity. There may be some costs attached, as some are billed no fee. As always, be sure to fully research this so you don’t run the risk of running into surprise payouts later on.
Seniors and Annuities
Other common annuity myths center around the people they have the greatest potential helping: seniors. Because of this, some have written off annuities as a later-years option. But that isn’t accurate.
There’s plenty to consider in the annuity market for seniors. For some, a fixed annuity provides them with a guaranteed return rate over an established time frame. In other situations, they may benefit from the a variable annuity. If so, those may want to look into an additional income rider to account for the varying potential of your investment. If those don’t seem to be the right fit, there’s an indexed product that aims for a high upside with protection if returns decline.
Other myths stem from what happens to your plan once you pass. I can’t stress enough that once you pass, the annuity doesn’t pass with you. Even if that isn’t the prime concern, some retirees and their heirs worry about the future cost they’ll have to pay on.
Another fair concern but often misread situation, annuities grow on a tax-deferred basis. Upon your passing, your rightful heirs will only pay the ordinary income tax on the profit, which is compounded because of the tax deferral. Many fear this, but in actuality your heirs will indeed inherit your fixed, variable or index annuities. What those concerned might be thinking about is the immediate annuity option. With immediate products, your payouts stop at the time of your death unless a specified end date was previously established.
In the end, it all boils down to what I’ve said time and time again: do your research. It’s certainly great to get feedback from advisors and people that already went through your predicament. However, you have to factor in what makes up your situation and how to plan for your future. Annuities may or may not be the right option for you. Just don’t let misconceptions be your reason. Do the research to ensure your best potential over the coming years.