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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 would typically write 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 knowledge that a lifetime of savings will not be diminished due to unforeseen factors.
Fixed Annuities Will Never Outperform Inflation
The fixed annuity offers security in knowing you are guaranteed a set interest rate over a specific period of time, and is often used to give long-term investments more growth return and tax advantages over 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.
Never Invest Your IRA Money in an Annuity
A frequent caveat found within tips on how to qualify your financial advisor is to automatically disregard anyone who ever recommends an annuity within an 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.
Your Insurance Agent Isn't Qualified to Offer Financial Planning
Some investment managers will diminish 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. They also undergo continual training and professional courses year-round to improve their knowledge.
Every Annuity Is a Variable Annuity
Very often, the risk properties of the variable annuity are incorrectly referenced on behalf of all types of annuities, undermining consumer knowledge and confidence in non-security-based investments such as fixed and immediate annuities. The strength and security of these annuities are not based on stock market performance however, and offer guarantees through fixed minimum interest rates and future protection against loss of principal and earnings.
Indexed Annuities Are Often Sold Inappropriately
The opinion of many stockbrokers is that indexed annuities are often sold inappropriately to seniors, as they limit the total earnings an investor can receive during upswings in market performance. 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 their life savings, and typically has several options by which to guarantee minimum interest rates paid regardless of performance. As far as suitability goes, according to consumer data from the National Association of Insurance Commissioners, in 2004 equity indexed annuities reached sales of $23.3 billion, with only 38 closed complaints nationally, or $614 million of sales for each complaint received.
Never Invest Your IRA Money in an Annuity
A frequent caveat found within tips on how to qualify your financial advisor is to automatically disregard anyone who ever recommends an annuity within an 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.
This information was provided by the Annuities Institute, which was created by a national, independent network of financial advisors, insurance specialists, and retirement planners. Its members work to provide objective and independent assistance in evaluating annuities to help reach retirement, income generation, tax reduction, and asset protection goals.
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Mintco Financial is a team of independent and fiduciary advisors with offices located in New York and Florida. The team has been serving clients all around the country.
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