In this series of blogs, we have been going over common misconceptions about annuities and how they fit within your retirement plan. In Part One, we dispelled the fact of annuities being sold is an adverse element. A life altering decision like a home purchase or a retirement plan require an advisor to help make the complex benefits simple and a better fit for the individuals unique circumstance. Another common myth, is the idea that once you buy an annuity you can never get any of your money back. This propaganda is commonly spread by opponents of annuities, but the fact is there are many different features that allow access to most if not all your money. The bigger question is, Do you need it? Meaning, if you spend your retirement nest egg in one shot, how do you maintain retirement? The tradeoff of some access that you should not be spending anyways is well worth the growth, safety, and income guarantees that annuities afford their policyholders. In Part Three, we discussed expenses in annuities and how “expensive” truly is an annuity in comparison to other retirement planning vehicles. It is rightly a “pay for what you get” and a “use what you pay” for scenario. We also showed how not all annuities have the same costs. In fact many have no costs.
Another “negative” often debated by advocates and opponents of annuities:
- Annuities are SO complex!
This is an argument I can see both sides to in the most basic sense. However it does not make this any less frustrating to me or misleading to the consumer. Let me explain. Again, not all annuities are created equal. Some are as basic as a legal document can be. For example, a Certificate of Deposit, or Bank CD, is a fairly simple financial vehicle. You give money to the back, and they agree to pay you a set rate over a set period of months or years. Fixed Annuities have many of the same characteristics of Bank CDs, but with some extra tax advantages. Not too complex, right?
But some annuities, primarily Variable and Fixed Index Annuities, are much more complex. But is this a bad thing? An iPhone5 instruction manual is 153 pages long. And frankly, many of those pages direct you to a website to learn more. The first cell phone I ever owned was a Samsung N200. The instruction manual for this “cutting edge for its time” phone was 32 pages.
Some annuities have more features, benefits, and investment options than a Fixed Annuities or Bank CD. And with that comes more complexity. However, with that also comes exponentially more functionality, customization, and benefits for the consumer. Complexity does not equal bad if you have someone to guide you through how the different benefits and functionality and how it applies to your needs and goals. The key here goes back to myth #1; make sure you have an advisor that understands the complex features. But it is even more important that they also understand you and your unique retirement goals and circumstances.