Why Do People Hate Annuities? 

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    Golden Reserve

The Mentor shows the fixed and variable costs difference.

Poll your friends and family about annuities and you’re bound to get a lot of adverse reactions. They’ll likely cite at least one of these three things : 

  • They’re expensive and have big fees. 
  • They don’t give you access to your money. 
  • There’s no growth. 

While these statements are true of some annuities, they’re not true of all annuities. By painting with such broad strokes, you may be removing yourself from a great investment that provides safe growth in retirement. Here’s why. 

Misconception #1: Annuities are expensive and have big fees. 

Variable Annuities: TRUE

Fixed Index Annuities: FALSE

Yes, some (like variable annuities) are egregiously expensive. But others, like fixed index annuities are safe investments that allow your money to grow without the risk of losing it. FIXED INDEX ANNUITIES HAVE NO FEES, if you aren’t sold unnecessary riders, like guaranteed lifetime income or unlimited access to principal. The average cost of these riders is between .25% – 1% of your principal, which adds up quickly. 

Misconception #2: Annuities don’t provide access to your money. 

Variable Annuities: TRUE

Fixed Index Annuities: FALSE  

In a variable annuity, you’ll pay a surrender charge if you take some or all of your money out too soon. Contrast that with a fixed index annuity, where you’ll have more access to your money than if it were in a bond, CD, or closed-end mutual fund. Most fixed/fixed index annuities allow for a penalty-free withdrawal of 10% of the annuity’s total value annually. Some allow for access to help cover long-term care costs.  

Misconception #3: Annuities can’t be used for growth. 

Variable Annuities: TRUE

Fixed Index Annuities: FALSE  

Variable annuities don’t guarantee growth, so it’s easy to see why this misconception is popular. However, fixed index annuities can be a good place to grow your money. While fixed index annuities don’t guarantee growth, they have a safety floor that ensures you will never receive a negative return. In order to make that protection possible, fixed index annuities have a participation rate or ceiling cap, but it’s a worthwhile trade-off to be able to earn returns based off the performance of a stock index without the risk of losing money. More on that here.

As you can see, some annuities—especially a fixed index annuity—actually do provide what retirees want. They’re safe, with no risk of loss, and even have no-fee options. They’re predictable in that you know within a set range how much it could grow. Finally, they grow tax-deferred. These are all good things. So, what gives? 

Blame variable annuities for the bad rap cast on annuities as a whole. Variable annuities are so terrible the Obama administration tried to outlaw them, but unfortunately the bill didn’t pass. Simply put, you might think you hate annuities, but what you really hate is variable annuities.  

There’s no sugar coating it: variable annuities deserve the negative attention. Just be sure not to include fixed annuities and fixed index annuities on your blacklist, too. Those truly are worth a look. 

For more on annuities, and the fascinating story behind their myths, check out Golden Reserve Founder Greg Aler’s new book Fire Your Financial Advisor. Or get in touch with one of our retirement planners.  

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