Debunking Annuity Myths
Many people are confused about annuities. Not surprising, perhaps, since there’s been such widespread product development in recent years, not to mention a degree of alleged misrepresentation by unscrupulous sales reps.
To set the record straight, TIAA’s Timothy Walsh, a senior managing director based in Waltham, Mass., lays out some simple truths.
“When people think about planning for retirement,” he says, “it’s important for them to not only set savings goals but also look at what their expenses will be, and have a plan to generate reliable monthly income to cover expenses.” This is especially important as the average life expectancy, and therefore the number of retirement years, grows. “It is essential that they have a source of lifetime income,” Walsh adds. “Annuities are the only financial instruments available, other than Social Security, that provide a guaranteed stream of retirement income that lasts the participant’s lifetime.”
Nevertheless, he cautions, myths persist. “Annuities are not a one-size-fits-all or an all-or-nothing solution,” he says. “There are many options available in the market today, and people need to be educated about the different types of annuities and their associated costs.”
For instance, in-plan annuities are typically more affordable than those purchased outside a retirement plan. In addition, says Walsh, “Many people think they don’t need an annuity because they can just withdraw money from their retirement accounts as they need it.” But the fact is, there’s always a danger of outliving your savings. “A lifetime annuity, on the other hand, provides guaranteed income for your entire life,” and your surviving spouse’s life as well, he says.
Other common myths:
- Annuities have high and hidden fees. “Annuity fees vary based on company and type,” says Walsh. One way to save on costs is to be careful about which features you purchase. There are many options. “While fixed annuities preserve the value of your money and allow it to grow at a guaranteed interest rate, variable annuities give you the opportunity to select from a variety of investment strategies whose value may change based on performance,” he points out. Naturally, it’s important to read the prospectus before purchasing.
- Annuities don’t offer flexibility. “Annuities can provide a wide range of flexible options for growth potential and receiving income,” he says. “When used with other retirement savings options, annuities can help you create a diverse retirement income strategy.”
Reference:http://www.fa-mag.com/news/debunking-annuity-myths-34064.html?section=93
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