When it comes to financial planning, you probably hear a lot of comments from friends and family alike, giving their two cents about different financial investments. Sadly, many people tend to downplay annuities and their importance as a safe and secure income-generating retirement plan. Let’s look at some common myths about annuities.
1. Annuities Are a Bad Investment – Because they do earn lower interest, many people think they are not a good investment. However, factor in safety. If you meet other advice such as maxing out your 401K contributions and having emergency savings, an annuity is a safe way to protect your money and set up an income for life.
2. Annuities Are All the Same – There are many different annuity funds run by many different insurance companies and financial institutions. Don’t think they’re all the same. Learn about every single option before choosing from more than one place.
3. Annuity Fees Are Too High – Many people say that the fees are too high, but again, this is due to the safety factor. The fees will not take away from your lifetime income, and if you live longer than expected, you could end up collecting more than your investment.
4. Annuities Don’t Offer My Spouse Protection – You can leave most annuity types to a spouse, child, or other loved one. It depends on the type you buy. If you want to provide lifetime income or a lump sum payment to your beneficiary, tell your financial planner or insurance agent what you are looking for.
5. You Can’t Access the Money in an Emergency – While there are limitations, fees, and penalties for withdrawing money early, these are lowered to be more reasonable after the contract terms – usually five to ten years from purchase. For this reason, do make sure you have access to other funds for emergencies.
6. Deferred Annuities Are a Waste – You may feel odd about stashing money into a deferred annuity while waiting until you retire, but this is a good way to keep your money safe. If you have money left from other investments or you come into money well before retirement, it’s not a waste. It’s safe.
7. Immediate Annuities Are Too Risky – Most people buy an immediate annuity because they are over 65 years old, came into a large sum of cash, have maxed out other contributions, or are trying to defer taxes until later during retirement. An immediate annuity can protect your cash value from taxes today, and you’ll only pay taxes on your monthly payments as ordinary income. Hardly risky.
8. There Are Better Ways to Create Lifetime Income – There may be, but there are few ways that you can do this with less money. For example, if you invested 1,000,000 dollars into an immediate annuity today, you will collect about $65,000 a year for life and be able to leave some to your spouse too. If you kept that money, you might blow it or lose it in another way.
The best thing to do is to talk to a professional financial advisor about your goals and plans for your future and retirement. They are the best people to help you make good choices. Many credit unions and other banks like institutions offer financial advice, or you can find a certified financial planner to help you figure out what is right for your needs.
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