While annuities have long been a viable retirement option, those new to retirement planning may discover a bit of misinformation about them. If you’re considering annuity-based products—such as fixed index annuities (FIAs)—as a way to boost the diversity of your retirement portfolio, it’s important to separate misconceptions from reality. Here, we’re busting 10 myths about annuities by providing the facts.
Reality: Once you decide an FIA is right for you, many contracts can be started with as little as $5,000. The key is to meet the minimum requirement and include as much nest egg as it makes sense to achieve your financial goals.
Reality: FIAs are tax-deferred, meaning you won’t pay taxes until you begin making withdrawals. At that point, the money you earn from your FIA will be taxed like normal income. Ask your tax advisor about the impact of FIAs when researching your retirement options.
Reality: FIAs offer the benefit of steady lifetime income with a minimum guaranteed interest credits. It is one of the only retirement products that can help ensure you will not run out of money and will have a steady income for the length of your entire retirement. You cannot “outlive” your money with an FIA, which is different than drawing down another product.
Reality: All financial products should be reviewed by a trusted financial professional. However, FIAs offer clear benefits of continued growth, a steady income stream and assurance that market downswings won’t affect your principal.
Reality: While no retirement product can guarantee zero risks, FIAs protect your principal from the uncertainty of market volatility. Earnings never fall below zero, even if the index goes down.
Reality: FIAs are appealing because they can transform retirement savings into predictable income. Your nest egg is protected from downturns, and many FIAs have riders or provisions to allow some liquidity when you need it most.
Reality: It’s true you’ll be giving up some potential upside when deciding on an FIA. On the flip side, FIAs protect your principle form market downturns, while continuing to give you interest credits.
Reality: FIAs are one tool among many to help you prepare for retirement, and the strongest portfolios include a diverse range of options. FIAs are designed to provide foundational savings so you can have an income source to pay for bucket list items or to cover routine lifestyle costs, should your other investments take a hit from market swings.
Reality: FIAs are a great tool to use when planning for retirement. As a result, younger generations are considering these products as part of their overall portfolio, due to its offerings of growth and balance.
Reality: FIAs can allow proceeds to go directly to a beneficiary in the case of a death. You can even choose to set up your annuity as a “joint life” in order to provide you and your spouse guaranteed income for life, no matter how long each of your lives.
Still, have questions? We’ve got answers. Check out our extensive list of resources designed to help you prepare for retirement.
In conclusion Demo DMS specializes in providing guidance for those who are making financial choices to ensure a better retirement. We offer our experience to help you design a strategy for financial independence. We also help you debunk any myths about annuities. Contact us today to schedule an introductory meeting!