Don’t Be Fooled by These 5 Annuity Myths
Yes, shopping for an annuity can feel daunting. What’s worse, the marketplace is flooded with lots of bad information. I speak to people every day that are confused and may be even put off from the idea of purchasing an annuity because they’ve stumbled upon opinions that are just not true.
Some of the most common misconceptions I hear include:
1. Annuities are expensive with high fees.
2. The insurance company will keep all of my money when I die.
Again, this is true only for a very limited number of annuities, so-called "life only" immediate annuities. In fact, almost all other types of annuities are designed specifically to give a payout to your beneficiaries upon your death. Buying an annuity does not mean you are neglecting your beneficiaries.
We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!
3. All annuities have high commissions.
In reality, some annuities - notably immediate annuities - have a very low commission. Commissions tend to be higher for more complex annuity contracts like variable annuities and certain hybrid and index annuities.
4. It’s a bad time to buy annuities when interest rates are low.
Forecasting interest rates is tricky with any type of investment. The best interest rate advice I can give you is to choose your goals, buy a product that will meet those goals, and then get a good night’s rest.
Timing the market is as much about luck as it is about expertise.
5. Annuities are always good for the carrier but bad for the customer.
Yes, insurance companies structure annuities to be profitable. Nevertheless, they do offer big benefits to policyholders, too. It’s good business for any company to “win” at the same time the customer “wins.”
When shopping for the right annuity, always look for the one that "fits" best. You will feel most satisfied when you know you have made an investment decision that will do a great job of meeting your retirement goals.
Ultimately, the decision to purchase an annuity is about helping you ensure peace of mind. Whatever your financial goals – for you or for your beneficiaries – you should seek an advisor who will take the time to explain all the implications of the annuity you choose.
As with anything, the bad news makes headlines, but the good news rarely gets reported. “Annuity Customer Sleeps Well at Night” is not an exciting title… unless, of course, it's about you.