Of all the investment tools in our country, annuities are one of the most often misunderstood. And because there are different types of annuities – fixed vs. variable for example – the confusion grows even more.
But before you shy away from an annuity, know this: there are many benefits to this type of investing vehicle. Let’s look at some of the more common misconceptions about the fixed annuity.
- Fixed annuities are not a good investment if you are close to retirement. On the contrary, a fixed annuity is a good investment no matter what your age; it is a guaranteed income and is tax deferred.
- Your money won’t pass to your family. This is also untrue, the money does pass to a beneficiary, plus it will not have to go through probate.
- Fixed annuities have large penalties. This is partially true, but it is like any other type of investment that has penalties for breaking an agreement.
- Agents make large commissions from your investment. The agents do make money, but this is from the insurance company and not taken from your investment. It is like a travel agent that is paid from the tour company, it doesn’t cost you a penny more.
- Fixed annuities are an unsafe investment. In reality fixed annuities are one of the safest investments you can make; insurance companies guarantee them.
- Your money will be tied up and inaccessible. This is also not true. You can have access to your money anytime, and there will be no penalties as long as you follow the contract.
Don’t be scared off by horror stories about fixed annuities; take some time to research the subject and come to your own conclusions. If you do decide to purchase an annuity, make sure that you completely understand how this investment works, and then decide if it is a good choice for you.