Breaking the Myths: 5 Common Misconceptions About Annuities

Annuities are often misunderstood, and unfortunately, myths about them can discourage people from exploring their benefits. Whether you're planning for retirement or looking for ways to secure guaranteed income, annuities can be a powerful tool. Let’s set the record straight by debunking five common myths about annuities.

Myth #1: Annuities Only Provide Income

Many people assume that annuities are solely for generating income in retirement. While income is a significant feature, annuities offer much more. Depending on the type of annuity you choose, you can grow your wealth tax-deferred, protect your principal from market downturns, and even leave a financial legacy for your loved ones. Some annuities also offer riders that provide benefits like long-term care assistance or enhanced death benefits.

The Reality: Annuities can be customized to meet various financial goals, not just income.

Myth #2: The Insurance Company Keeps My Money If I Die

This is one of the biggest misconceptions about annuities. People often worry that if they pass away early, the insurance company will keep their remaining balance. The truth is, many annuity contracts allow you to designate beneficiaries who will receive the remaining value of your annuity.

The Reality: If structured correctly, annuities can provide a payout to your heirs, ensuring that your money doesn’t disappear if something happens to you.

Myth #3: Annuities Have High Fees

Another common concern is that annuities come with excessive fees. While some types of annuities, such as variable annuities, can have higher fees due to investment management costs, others—like fixed and fixed index annuities—typically have little to no annual fees.

The Reality: The cost of an annuity depends on the type you choose and the features you add. Many annuities have low or no fees unless additional benefits, like income riders, are selected.

Myth #4: Annuities Offer Low Returns

Some people believe that annuities provide returns that are too low compared to other investments like stocks. While it’s true that certain annuities focus on safety over high-risk, high-reward investments, indexed annuities, for example, offer the potential for higher returns linked to market performance—without the downside risk.

The Reality: Fixed index annuities can generate competitive returns while protecting your principal from market losses. They strike a balance between growth and security.

Myth #5: Annuities Lock Up My Money With No Liquidity

Many assume that once they invest in an annuity, they can’t access their money. While annuities are designed for long-term planning, most offer penalty-free withdrawal options (usually up to 10% per year). Some annuities also include provisions for emergency access due to critical illness or nursing home care.

The Reality: Most annuities allow partial withdrawals without penalties, and some provide additional liquidity features in special circumstances.

Annuities are a valuable financial tool, but myths and misinformation often prevent people from taking advantage of their benefits. If you’re considering an annuity, it’s important to consult with a financial professional to understand how it fits into your overall financial strategy.