Have you hesitated to explore an annuity as part of your retirement planning? If so, you could be missing out on a tool that is helpful for generating income and managing downside risk. While an annuity isn’t appropriate for everyone, it can be useful in the right situations.
It’s very possible that an annuity may not be right for you. However, the only way to make that determination is to analyze options and compare them with your needs and goals. Below are a few myths that often keep people from exploring annuities in their retirement planning. If these myths have kept you from analyzing annuity strategies, now may be the time to reconsider.
Annuities are overly complex.
Like many financial tools, annuities can be complicated. They have a wide range of features. Choosing from those options can be overwhelming if you’ve never analyzed an annuity before.
However, many annuities are relatively simple to understand. For example, a single premium immediate annuity simply provides you with a guaranteed* stream of lifetime income in exchange for a lump-sum premium payment. The amount of your income is based on your life expectancy and the amount of the premium.
Other annuities may be more complicated. However, an experienced financial professional can help you understand how the annuity works and how it can impact your retirement planning.
Annuities can’t be passed to loved ones.
Is your legacy for your loved ones a big priority? If so, an annuity can still play a role in your planning. Many people assume that annuities can’t be left as an asset for loved ones, but that’s usually not the case.
Deferred annuities often come with a death benefit. When you pass away, your beneficiaries file a death benefit claim and receive their share of the benefit. The amount of the benefit depends on the terms of your specific policy. One appealing feature is that the benefit usually avoids probate.
Immediate annuities generally don’t have lump-sum death benefits. However, you can set up your immediate annuity to continue income to your heirs. For instance, you can add a “period certain” onto the policy so that if you die within that time frame, the remainder of the period is paid to your beneficiaries. A period certain may reduce your payment, but it offers an opportunity for your loved ones to receive income if you should pass away early in the contract.
Annuities don’t have liquidity.
It’s true that annuities often have liquidity limitations. However, the extent of the liquidity limitations depends on the type of annuity you use. For example, many deferred annuities allow you to access up to 10 percent of your account value every year without facing a surrender penalty. After the surrender penalty ends, you may be able to access your full account value without facing a penalty.
Immediate annuities generally don’t have any liquidity. However, remember that the immediate annuity will provide income. That may allow you to avoid taking income from other sources, which could allow you to retain liquidity in other areas to fund unexpected costs.
Ready to explore whether an annuity is right for you? Let’s talk about it. Contact us at MasterPlan Retirement Consultants. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
Annuities are designed to be long-term investments and can involve charges such as administrative fees, annual contract fees, rider fees, mortality & risk expense charges and surrender charges. Early withdrawals may be subject to surrender charges and can impact annuity cash values and death benefits. Taxes are payable upon withdrawal of funds. An additional 10% IRS penalty may apply to withdrawals prior to age 59 ½. Annuities are not guaranteed by FDIC or any other governmental agency and are not deposits or other obligations of, or guaranteed or endorsed by any bank or savings association. When considering replacing or transferring out of an annuity it’s important to understand what costs may be incurred such as surrender charges and the loss of death and/or income benefits.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
Investment advisory services offered through MasterPlan Retirement Consultants, Inc. a Registered Investment Advisor in the state of Georgia. Insurance products & services offered through Fricks and Associates, Inc. MasterPlan Retirement Consultants, Inc. & Fricks and Associates, Inc are affiliated companies.
MasterPlan Retirement Consultants, Inc. & Fricks and Associates, Inc are not affiliated with or endorsed by the Social Security Administration or any government agency.
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