Dispelling misunderstandings about annuities
October 3, 2014 by David Shields
Over the last 21 years of my career in the financial industry, I have constantly been amazed at the misconceptions and lack of knowledge the public has about annuities. I understand that annuities are rarely (if ever) discussed in schools or colleges, but the average investor’s preconceived notions about these incredible retirement vehicles are grossly inaccurate.
My eyes were really opened to how widespread a misunderstanding there is one Christmas holiday in 2004. As I sat around the kitchen table with my two older brothers and listened to them describe their understanding of annuities, it became apparent that there needs to be more education about these retirement planning tools in our country. You see, both of my brothers are very intelligent individuals — one a chemist and the other a medical physicist. By most accounts, I would be labeled the least educated sibling.
As I inquired about their understanding of annuities, they both had concluded in their mind that these were “rip-off” investments offered by money grubbing insurance companies and that if you died young, the insurance company would keep all of your money, leaving your spouse and/or kids penniless.
Wow. What an eye opener!
Where did they come up with this incredibly incorrect information? My only conclusion was that like many Americans, they had heard misinformation from one of the many uneducated talking heads on the radio, television or Internet. It amazes me how such smart people can take advice from celebrities who don’t know what they’re talking about.
The truth is that annuities are one of the most powerful tools available today that can be used for retirement accumulation. They also lead the pack when it comes to providing guaranteed income when an individual is in retirement. Where else can you find real benefits such as:
- tax deferral
- avoidance of probate
- creditor protection
- income that cannot be outlived
- principal protection
- wealth transfer to heirs
- home care and/or nursing care benefits
- and the list goes on
Unfortunately, what most individuals know about annuities pertains to one type of old-style annuity called a life-only annuity. These are financial instruments that should be used only in rare cases, such as Medicaid planning. No logical planner would ever include these in a client’s portfolio except in very specific cases.
Today’s annuities are packed with benefits for the consumer. They come in many shapes and sizes and are perfect tools for both accumulating wealth during the working years and distributing income during the retirement years, ultimately leaving a legacy for children and/or grandchildren.
Whenever possible, I urge consumers to speak with a true financial planner today and get the real facts on annuities rather than listening to uneducated celebrities who are paid to say what their sponsors want them to say.
By the way, both of my brothers are now proud owners of their own annuities and are enjoying great returns while never putting their principal at risk.
