Jun 30, 2022, 1:50:58 PM | Reading Time: 3 minutes
Annuities are often misunderstood. Many people may find it difficult to understand and navigate these insurance products due to misinformation, rumors, and myths. As a result, many individuals may be put off by the idea of purchasing an annuity.
In truth, some annuities, such as fixed index annuities, can help you generate income and provide growth potential while protecting you from market downturns. Let’s tackle some common questions and misconceptions about annuities to help you make an informed decision about whether an annuity might be the right choice for you.
1. Are all annuities the same?
Although annuities share many common attributes, each annuity type has its own set of rules. In general, an annuity is a contract with an insurance company in which you pay (one-time payment or a series) to receive guaranteed income at some point in the future.
What are the different types of annuities?
Types of annuities include fixed annuities, variable annuities, and fixed index annuities. There is a range of annuity options, but typically they fall into two categories — immediate annuities and deferred annuities.
An immediate annuity allows you to make a lump-sum deposit and immediately start drawing income. With a deferred annuity, you give an insurance company money and the company pays it back at a later date based on the accumulated value and a guaranteed interest rate. When you purchase a deferred annuity, you won’t receive income payments until you elect a payout option.
To learn more about these types of annuities and specific Midland National annuities, you can reach out to a financial professional. He or she can help guide you, answer your questions about annuity products, and more.
2. Do all annuities have fees?
Most annuity types have no maintenance fees or annual fees. Some annuities have varying fees depending on the type of the annuity and additional benefits it may provide. It’s important to understand the different types of annuities, so you can compare their costs and benefits, and determine what product will be right for you.
Annuities can offer valuable features that aren’t typical of other retirement income options, like tax deferral, income guarantees, guaranteed minimum values, and/or a guaranteed minimum death benefit. If you’re uncertain about the fees associated with the annuity you think is a good fit for you, ask your financial professional for clarification.
3. Can you withdraw money from an annuity?
Many annuities give you the option to withdraw a portion of the contract without a penalty. Some annuities may require a waiting period before you can access the full value of the annuity. Rules regarding early withdrawal vary — you would want to check on specific features with your financial professional.
4. What happens to an annuity if you die?
Some people may believe an insurance company will keep the remaining annuity value upon death. This is true of a "life-only" payment option within an annuity contract, but life-only is just one of many payment options you can choose.
If you want to ensure your beneficiaries receive your remaining annuity value when you die, you can choose an annuity payment option with a refund feature. In general, this type of annuity payment will be lower than a “life-only” payment, but it ensures any balance that remains between the sum of the payments and the account value is paid to your beneficiaries. Everything the annuity can and cannot do should be written in your contract.
5. Are annuities just for older people?
Annuities can be excellent tools for accumulation and income, no matter your age. Many young workers are using annuities as a tax-deferred way to save for their future. Some people choose to wait until they are nearing retirement to purchase an annuity.
Every situation is different, it’s important to seek tax advice from a qualified tax professional when purchasing an annuity to understand any withdrawal penalties that may apply.
6. If I already have a well-rounded portfolio, do I need an annuity?
Annuities like fixed index annuities are becoming a household term as a new generation of savers continue to be drawn to growth potential and downside protection from market downturns. The opportunity for growth and protection against the unexpected can make fixed index annuities a nice fit for many retirement portfolios.
No matter where you fall on the risk spectrum, a financial professional can help ensure your retirement portfolio matches both your goals and comfort level. Use the calculator below to determine your current balance with risk.