No one wants to outlive their money. But, when it comes to planning for the retirement of your dreams, longevity risk is a big factor. Annuities, by design, can help mitigate that risk. So let’s clear up a few myths that have given annuities a bad rap.
1. If I die young, the insurance company keeps my money.
If you own an annuity with a “single life only” option and you die soon after your payments begin, the remaining payments cease. However, virtually all annuities offer an option for a guaranteed period of payment, which means you or your heirs will receive payments for a pre-determined number of years no matter what. Usually, these guaranteed periods can be 10, 15 or 20 years long. The term you choose will impact the amount of your payments.
2. I don’t need an annuity. I can just withdraw money from my retirement accounts as I need it.
Yes, you can try to create an income stream from your retirement savings. But, if your investments don’t perform as expected or you live a long life, you may either need to decrease your income and adjust your investment mix, or risk running out of money. A lifetime annuity, on the other hand, provides guaranteed income for your entire life. If you co-own an annuity with a spouse for instance, your annuity can be structured to guarantee income for the duration of his or her lifetime as well.
3. Variable annuities have high and hidden fees.
Annuity fees vary based on company and type. You can, however, find lower cost annuities with features that suit your needs. While fixed annuities preserve the value of your money and allow it to grow at a guaranteed interest rate, variable annuities give you the opportunity to select from a variety of investment strategies whose value may change based on performance. Read the annuity’s prospectus and speak to an advisor to gain a clear understanding of what you get and what you’re paying for.
4. Annuities don’t offer income flexibility.
Actually, annuities can provide a wide range of flexible options for growth potential and receiving income. When used with other retirement savings options, annuities can help you create a diverse retirement income strategy.
5. Once I start receiving annuity income, I can’t transfer money among the different investment accounts.
Once you “annuitize”, it’s true that you can’t transfer the money out of the annuity and into other investment vehicles. Generally, you can modify the investments inside your annuity to address your changing needs.
Annuities are the only financial product that can guarantee life-long income. Discuss your needs with an advisor to determine if a fixed or variable annuity might work within your overall retirement strategy.