When you are planning for retirement, creating a strategy to receive ongoing income is an important way to help ensure you can maintain the quality of life you desire. Annuities can be a helpful tool for many investors, due to the ability to structure them for providing retirees with guaranteed income for the duration of their life.[i] And having this dependable retirement income is a priority to many people.
In fact, a recent TIAA-CREF study revealed that having guaranteed income to cover retirement costs is the top priority for 49% of the individuals polled.[ii] Yet, 65% of people don’t know how much monthly income they’ll have in retirement.[iii] Having predictable income is critical, but to build it and comfortably cover your expenses, you need to align your retirement goals with your planning strategies. For many people, annuities could be a helpful investment for their goals. However, investors have mixed feelings about annuities: 66% of Americans aren’t familiar with annuities — and only 23% of them have a favorable opinion.[iv]
To help you better understand the annuities landscape, here are a few myths to debunk.
Myth #1: Annuities are too expensive. [v]
Investors can choose to purchase different types of annuities. And while they do have fees to buy and sell them — as stocks typically do, too — that doesn’t mean they’re too expensive.[vi] Some annuities have low fees, and you can even purchase no-fee annuities.[vii] The annuities landscape is continually evolving, and many providers are looking at ways to further minimize costs to investors.[viii] So while you should look at your personal purchasing power when selecting any investments — since investors often purchase them with larges amounts of capital — you shouldn’t have to break the bank buying annuities.
Myth #2: Annuities are wasteful investments if you die soon after purchasing them. [x]
Annuities are an insurance contract that you buy. And they can provide you with assurance that you can have financial coverage for as long as you live, depending on how you structure the investment.[xi] Just as you protect your home or car with insurance by paying into a policy, you enter a similar relationship when purchasing annuities. For this reason, you can find confidence knowing you’ve protected yourself with the coverage you need to not outlive your money.[xii]
If you happen to know that you will likely have a shorter-than-normal lifespan, then annuities may not be the right strategy for your financial life.[xiii] Otherwise, annuities can be helpful investments for your retirement-income planning.
Myth #3: Your invested money goes back to the insurance company once you pass away. [xiv]
Fortunately, this myth just isn’t true. While different annuities can have different payout policies and options, you can designate a beneficiary for your policy, similar to investments like life insurance.[xv] Deferred annuities and income annuities have different beneficiary designations available to them — and some may incur an additional fee to add a beneficiary.[xvi] But the option to name an heir to your investments exists, so you can pass on the money you’ve invested once you’re no longer here to receive the income.
Overall, your retirement goals and income needs will drive what the best investments for your financial life are. If you would like to discuss the annuities you own or the potential of purchasing them, we’re happy to help. Please contact us at (518) 581-1642 to schedule a meeting with us today.