Annuities have drawn supporters and skeptics throughout the years, and a diversity of ideas regarding their worth as retirement income generators. However, with all the information available on the Internet, there is also bound to be misinformation. Below are some of the common annuity myths debunked. Look into advisor resources in Simi Valley, CA, today to learn more. 

Myth 1: All annuities are the same. They are only suitable for retirees.

Various annuities are unique and can help a wide range of people achieve their financial objectives. Annuities are classified into two types: 

  • Deferred annuities allow you to build wealth by deferring taxes. Fixed-rate annuities, like CDs and fixed-index annuities, give the potential for growth without the downside. And variable annuities, which are similar to mutual funds with tax deferral. Profits in the annuity that have been let to grow and compound are tax-deferred. 
  • Income annuities (immediate and deferred) give a steady income stream for a predetermined time or life. The only financial product that assures income for life is a lifetime payout annuity. Income annuities often have no cash surrender value once payments begin. 

Myth 2: All annuities have exorbitant fees and costs. 

Most do not. Since the annuity market is so competitive, insurers who do not provide good value will not attract many consumers. Variable annuities have recurring fees that are taken from the contract value, which can be rather significant at times. According to Morningstar Annuity Research Center, annual expenses average 1.10% but can be significantly lower or much higher. You can avoid more expensive products because the prospectus explicitly states costs. 

Unless you pick an extra rider(s), there are no consumer fees with fixed annuities. No sales commission exists; all funds deposited are instantly put to work. Fixed-rate annuities typically pay much more than bank CDs with the same duration, indicating they provide good value. Rates have recently risen.

Income annuities from various insurers produce varying amounts of income. Work with a knowledgeable annuity advisor who will shop the market and provide you with comparisons from different insurers to ensure you get the best value. 

Myth 3: Annuities are not appropriate for IRAs. 

Most types can be used as standard or Roth IRAs. This is one of the most common misconceptions. Annuities of one or more varieties can be an excellent choice for IRAs.

A fixed-rate annuity can be an excellent alternative for IRA assets you wish to protect against market risk while earning a fixed interest rate. It has a substantial benefit over bond funds because your principal is guaranteed. 

Talk to an expert today if you wish to learn more about annuities and whether they are right for you.