Be mindful of the messenger that positions certain products or services as “always” bad or “always” perfect. The fact of the matter is there are no “bad products” or “perfect products”. The right product is one that aligns with your goals and objectives.
The Institute of Financial Wellness believes when it comes to financial decisions; “Never Say Never – Never Say Always…It Depends.” There is a lot of misinformation about annuities and this article helps clarify when they make sense and when they don’t!
4 Reasons Why Annuities May Make Sense:
- Annuities protect principal. Both fixed annuities and fixed index annuities offer guarantees you will never see a negative return on the money deposited. Fixed annuities offer a fixed interest rate while fixed index annuities guarantee you won’t lose principal and provide upside potential based on different indexes.
- Certain features or “riders” on an annuity contract will guarantee lifetime income each month for either an individual’s or joint life. This provides comfort and security to many retirees so they know their living expenses will be covered each month.
- Structured annuities offer “buffers” which give you some downside protection as well as upside potential. These annuities are not as “safe” as fixed index annuities but they often offer greater upside potential.
- A nice feature of all annuities is the interest and growth are tax-deferred.
4 Reasons Why Annuities May Not Make Sense:
- Insurance companies provide guarantees based on purchasing certain bonds and options with your deposit; therefore there are accessibility and liquidity restrictions. Generally speaking, access to 10% of the deposits are available after the first year, but if you need to access the principal beyond the 10% there is often a penalty (anywhere from about 6-10% depending on the terms)
- Some variable annuities with additional riders could have as much as 3%-4% annual operating expenses. Considering an average mutual fund will have between 1% – 1.5% of total operating expenses this extra fee should only be paid if the riders are fully understood and valued by the annuity purchaser. As the saying goes, “price is only an issue in the absence of value.” For some people, the extra fees may be worthwhile, but if you don’t see value in the annuity rider’s benefits you should not buy the annuity.
- If you “annuitize” (fully convert the principal to a guaranteed stream of income for life) you will lose access to the principal and possibly prevent the remaining money from going to your beneficiaries. There are other ways to secure lifetime income without having to “annuitize” the contract, and it could be a disadvantage if you have a strong desire to leave your assets to a beneficiary.
- The general consensus is that you will not make as much money in an annuity as you will in mutual funds or stocks. However, there is no principal protection in stocks and mutual funds which is why it may make sense to keep a portion of your money in annuities.
Learn More About IFW’s Retirement Planning Education Services
The IFW provides valuable financial education, resources, and services that help people live their best life.
Please remember, be mindful of the messenger that positions certain products or services as “always” bad or “always” perfect. The fact of the matter is there are no “bad products” or “perfect products”. The right product is the one that aligns with your goals and objectives.
The Institute of Financial Wellness believes when it comes to financial decisions; never say “Never” never say “Always”…It Depends.
Rees Bridges brings a unique value to the IFW as both a highly accomplished creative professional and a successful financial services executive to serve in his role as Senior VP, Marketing & Communications.
Over the last decade Rees has served as the lead marketing & communications professional for a Fortune 500 Financial Services firm. He oversaw all advisor marketing strategies, client communications, and the entire firms branding and marketing initiatives.
Rees continues to pursue his passions as a creative professional & musician for over 30 years, with an impressive profile and reputation as a designer, performer, teacher, and studio musician. Here is a little secret: He serves in the role as an international clinician for Mapex drums, Paiste Cymbals and held the record for world’s fastest drummer between 2006 and 2007.
Rees grew up in London, England and currently resides in Miami, Florida. When not at work, he enjoys spending time with family and friends, traveling, and indulging in his passions for music and creative pursuits.