Photo credit: <a href = "http://www.freedigitalphotos.net/images/view_photog.php?photogid=2664">Stuart Miles</a>

There are a lot of myths about annuities. Some are outdated and others are flat-out wrong. Similar to how today’s cars have features and options that were not available 20 years ago, annuities have evolved from what they were years ago.

Annuities are becoming more compelling because of two simple reasons. First, banks and insurance companies are the only two institutions that offer protection with certainty and definition. Second, people want to protect their life savings from the drama on Wall Street. Anyone who’s suffered a financial loss in the past few years needs to know that annuities can be an important part of a solid retirement plan.

Annuities protect a portion of a client’s retirement savings from market loss and ensure a percentage of their income lasts as long as they do. Today’s retirees or soon-to-be retirees actually prefer protection over growth. In my practice here in California clients are answering the question, “Do you still trust Wall Street?” the same way. “Not like I one did…”

Let’s take a closer look at some common myths about annuities and how they actually work.

Myth 1 “Annuities are too complicated.”

The truth is, even though the mathematics behind an annuity may seem complicated as a concept, annuities are not rocket science. You give money to an insurance company and in return they give you a guaranteeeither a guaranteed interest rate, guaranteed income for a specified period of time, or even guaranteed income for life.

Myth 2 “Annuities have hidden expenses.”

The truth is that any charges, fees or expenses associated with annuities are not hidden from you. In fact, every annuity comes with documents for you to review. The contract and prospectus or statement of understanding that outlines any charges, fees or expenses help you make an educated and informed decision before you buy an annuity. In addition, annuities provide a valuable combination of benefits that other products can’t provide. Protecting your principal from market loss along with guaranteed income for life with flexibility and opportunities for increases are just some of the benefits that annuities offer over other products. In the end, the insurance company uses these fees to help support the guarantees made to you and their other customers.

Myth 3 “If I die while receiving income from my annuity, the insurance company keeps the rest of my money.”

The truth is today’s annuities offer options that let your beneficiary receive any remaining value left in your contract.

Myth 4 “Annuities lock up my money so I can’t access it.”  

Many annuities are designed to be long-term income products and today’s annuities offer various ways for you to access the money if something should happen. Most annuities give you access to at least a portion of the money each year. Some annuities may specify a commitment period before you can access the money from the annuity, but you can still withdraw money if needed, although certain fees and penalties may apply including income tax and tax penalties. Keep in mind the longer you own an annuity the more time you give your annuity the opportunity to grow. Think of baking a brownie. If you don’t follow the directions and take the brownies out of the oven early you’ve not given the brownies enough time to fully bake.

Today’s annuities are more flexible than those in the past and can help your clients live the retirement they want. The right annuities are a critical tool in helping you build your client’s retirement plan.

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