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A new report reveals annuity critics are often biased and incorrect in
their perceptions of annuities. While annuities have played a crucial
role in retirement planning throughout most of the last century, this
latest account reveals that the average consumer is now ten times more
likely to be fed information designed to discourage annuity purchase
rather than encourage it. Unlike other investments, annuities are
designed to provide a reasonable rate of growth while preventing the
loss of principal.
This Annuities Institute study analyzed more than 500 popular consumer
articles on financial planning and annuities. From the review, 93
percent of the documents researched contained inaccurate and disparaging
assessments of how annuities work within retirement plans. The
researchers also compiled a list of the most common misconceptions
published about annuities. Much of this drivel was then parroted
nationally by “professional planning advisors and retirement
specialists”. Here are the top 8 annuity myths:
Myth #1: Every Annuity Is a Variable Annuity
The volatility of the variable annuities is often incorrectly attributed
to all types of annuities. However, fixed and immediate annuities
perform independently of the stock market. The strength of these
annuities is that they offer guarantees through fixed minimum interest
rates and future protection against loss of principal and interest.
Myth #2: Your Insurance Agent Isn’t Qualified to Offer Financial Planning
Some investment managers belittle the value of annuities on the grounds
that the insurance representative does not need a securities license to
provide investment advice. A securities license is only needed,
however, when selling speculative investments where the potential for
loss exists. Many insurance providers focus on fixed and indexed
annuities for retirement where loss to principal and earnings is not an
option for their clients. These folks also undergo continual mandatory
training to improve their knowledge.
Myth #3: Fixed Annuities Will Never Outperform Inflation
The fixed annuity offers the purchaser security in knowing they are
guaranteed a set interest rate over a specific period of time. In
addition, annuities have many growth and tax advantages over bank CDs.
Some investment advisors are against fixed annuities because of their
perception of future inflation. They feel that some risk must be taken
to grow savings to maximize personal wealth. For investors who cannot
afford to lose any of their life savings, though, risk should never be a
substitute for long-term planning and new income generation.
Myth #4: Annuities Are All About Penalties and Surrender Charges
Like the 401(k) and IRA, the annuity takes advantage of special
legislation passed by Congress that provides incentives for individuals
to save more money for their retirement. The long-term savings approach
allows annuity providers to offer higher interest rates, guaranteed
security, tax-deferred accumulation, and positive planning benefits for
tax and distribution planning. No one typically writes negative
articles about how an IRA or 401(k) incurs unnecessary penalties for
accessing money before age 59 ½ . Annuities are designed to provide
long-term security and the reassurance that a lifetime of savings will
not be diminished due to unforeseen market factors.
Myth #5: Commission-Based Planners Must Be Biased
It wasn’t all that long ago that fee-based planning was created by
financial firms to ease client fears of non-objectivity. Their goal was
to maximize medium-term earnings and residual income, while having more
control over client investments. Ironically, many within that field do
not even actively represent or sell fixed, indexed, or immediate
annuities for retirement purposes even when safety and risk tolerances
dictate it. A frequent caveat found within tips on how to qualify your
financial advisor is to automatically disregard anyone who ever
recommends an annuity within and IRA. The exception to this, of course,
is when safety is paramount and loss to principal is not an option, and
the annuity offers a higher rate of return than other forms of
investment. Many fixed and indexed annuities outperform other
non-security investments while removing risk to principal and savings.
Myth #6: Only Deal with Big Names You Are Familiar With
While people typically gravitate toward big companies with names that
are instantly familiar, brand visibility doesn’t automatically mean the
best rates, service and performance. Restrictive affiliations and
objective advice do not normally go hand-in-hand as it can limit the
guidance you receive for key financial decisions. Make sure the planner
you select is not restricted in the advice and recommendation they can
make to you.
Myth #7: Only Deal with Registered Investment Advisers
Much criticism of annuities comes from professional asset managers who
earn a percentage of the total money they manage. Many of them often
forget that every investor is not after great wealth within the stock
market. Too often seniors are talked into placing their money in
vehicles that could instantly reduce their life savings. There is a
significant difference between the professional investor who wants to
aggressively grow his 5 million-dollar portfolio and the retiree with
$150,000 that will likely need every dollar and more to get through
their retirement without outliving their savings.
Myth #8: Indexed Annuities Are Often Sold Inappropriately
The opinion of many stockbrokers is that indexed annuities are often
sold inappropriately to seniors because as they limit the total earnings
an investor can receive during upswings in the market. The indexed
annuity was purposely created, though, as a hybrid investment that
combines the growth potential of the stock market with the safety
features of a fixed annuity. While potential upsides may be capped at 7
percent to 12 percent, an investor never has to worry about losing his
life savings regardless of market performance. According to data from
the National Association of Insurance Commissioners, equity indexed
annuities generated sales of $23.3 billion and only 38 complaints. Not
a bad ratio.
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