Annuities 101

Myths, facts, and how to get the information you need about this-often overlooked financial powerhouse.

Retirement planning can be daunting, even for experts. But what if there was a steady and proven financial solution that could provide a reliable source of income in retirement, regardless of market conditions? Enter annuities – an often-overlooked investment tool that has the potential to be a mainstay of your retirement strategy.

If running out of money in retirement is a concern, annuities are worth looking into for their ability to create a steady stream of income that will last a lifetime.

At their core, annuities are a type of investment that provides a regular stream of income in exchange for an initial lump sum payment. The concept is straightforward, but there are a number of misconceptions that prevent people from considering them. Here are five prevalent myths, along with the corresponding facts to help you make an informed decision.

Myth #1: Buying an annuity means giving up all control of my money and leaves nothing for loved ones.

Fact: It’s true that your principal is non-refundable once you buy an annuity. But you have many choices that help you control what kind of outcome you get—including options that may mean leaving a legacy for loved ones.

For example, you choose the type of annuity you want, including an indexed option. The choices you make govern how you’ll receive the income and for how long. If you’re concerned about leaving a legacy, dying before being able to benefit from annuity payments, or maintaining some control over your financial assets, you don’t need to go “all in.” You can:

• Use only part of your wealth to purchase an annuity, with the goal being to generate enough income to cover basic living expenses throughout retirement. This sum can complement any other sources of retirement income you have (government, investments) and has the benefit of being completely predictable.
• Consider a term certain or guarantee pay annuity. This type of annuity provides guaranteed payments for a fixed period of time (that you specify). If you die before you’ve received all the income, your beneficiaries receive a death benefit. In most cases, this benefit has two options: the beneficiary may continue to receive the remaining guaranteed payments or receive a lump sum payment equal to the present value of the remaining guaranteed payments.

Myth #2: Annuities are only suitable for older retirees.

Fact: Annuities can be an excellent choice for older retirees, but they can also be useful for younger investors who want to create a stable income stream over a longer period of time, i.e., income to bridge the gap between when you stop working and begin drawing a pension.