Annuity Myths

By Compuquotes Team on April 23rd, 2008


Both fixed and variable annuities have played an integral role in many people's financial planning. In fact, in recent years annuities have become one of the most popular forms of retirement planning in the United States, even more so than individual stock investing, money market accounts, and IRA accounts. However, with the option of choosing annuities as your ideal retirement plan come many questions as well as many myths. Before investing in any type of retirement planning, be it annuities or not, you should always be able to separate the fact from the fiction and debunk any myths you may have heard.

One of the most common annuity myths among the many investors today is that every annuity is a variable annuity. That is simply not true. There are both fixed annuities and variable annuities available for investors, and any financial planner can help you decide which might suit your lifestyle better. It is also thought that variable annuities are based solely on the stock market, which is also untrue. Fixed annuities offer investors the security of fixed minimum interest rates as well as protection against loss of earnings and principal.

Another common myth about annuities is that your insurance agent is not qualified or authorized to offer you any type of financial planning. In most cases, the insurance representative will not need a securities license to issue you investment advice when there is no potential for loss. Because many insurance companies focus on fixed and indexed annuities only, there is no potential for loss and your insurance agent can provide as much financial advice as needed.

It is also commonly thought that fixed annuities will never outperform inflation. When you choose a fixed annuity plan, it offers the security of knowing that you are guaranteed a set interest rate over a set period of time, which can allow for more growth in return and tax advantaged over other types of investments such as CDs and even some IRAs. Furthermore, another misconception about annuities is that they are all about penalties and surrender charges, which simply is not true. Investors are protected by legislation passed by Congress to protect interest rates over the long term and ensure life savings for retirement.

When investing in annuities, you do not always need to deal with big names that you are familiar with. While it is true that more peace of mind may be present when you work with a big company, some of the smaller firms are just as willing and able to help investors plan for their futures and retirement. It is important to remember that a big company name does not always mean that you will get the best interest rates, customer service, or performance. In fact, with the very large companies, there is always a risk to get "lost in the crowd" because of the sheer number of clients. Always be sure to do your research on each financial planning company before you sign up.

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