Annuities can be valuable assets in providing assurances and fortifying retirement plans. Despite their reputation for complexity and expense, annuities present numerous advantages for individuals at any stage of life, provided they understand their needs and shop wisely.

Here, we debunk five common myths and misconceptions about annuities to empower you to make informed decisions about your financial future.

Myth 1: Annuities are solely for retirees.

Reality: Annuities can also aid savers.

If you've maxed out contributions to your employer-sponsored savings plan or IRA, deferred annuities offer an additional tax-deferred avenue to grow your wealth. There are three types of deferred annuities:

• Deferred Variable Annuities: These have investment options that are very similar to mutual funds. You can typically make unlimited contributions and control how you allocate among investment options. To benefit most from a deferred variable annuity’s tax-deferred savings opportunity, use a low-cost annuity—some products are available for fewer than 50 basis points (0.50%) of your investment annually.

• Deferred Fixed Annuities: These include single premium deferred annuities (SPDAs), which are similar to a certificate of deposit (CD). You are guaranteed an interest rate for a specific period of time, typically 3 to 10 years. These fixed annuities are backed by the issuing insurance company rather than by the FDIC.

• Deferred Fixed Indexed Annuities: The best of both worlds…These combine features of both variable and fixed annuities. They offer the potential for higher returns based on a market index while also providing a guarantee of no loss …yes, your read that right market-like returns with a guarantee of NO Loss. This hybrid approach allows for growth potential but with the no risk, making it a versatile option for your investment portfolio.

Myth 2: Annuities are Prohibitively Expensive.

Reality: Many annuities are low-cost, and some even have no costs associated with them, particularly many Fixed Indexed Annuities. While some annuities come with higher costs due to additional features, these should only be considered if they address a specific risk you need to manage.

When choosing an annuity, first determine what you need the annuity to do: build savings or create income. Compare the costs against the value of each additional guarantee, feature, and benefit—pay only for what you need.

Annuities should not be used to "maximize tax-deferred savings" as variable annuities offer, since they come with inherent market risk and typically higher fees due to the money management involved. These fees can significantly eat into the cash value growth. Instead, consider annuities as a complementary piece to your portfolio. They are excellent for guaranteeing no losses on the principal, fixed to moderate or even market-like gains, and creating a steady income stream.

Fixed Indexed Annuities, for example, often come with no costs and provide growth potential linked to a market index while protecting your principal. This makes them an attractive option for those seeking both security and growth potential. By understanding the different types of annuities and their costs, you can better choose an annuity that fits your financial goals and budget.

Myth 3:  Annuities are Irrelevant for Pre-Retirement Income.

If your retirement is 10 years away or less, you're probably worried that a drop in the market could erode the savings you've worked hard to accumulate. This concern is valid, as market volatility can significantly impact your retirement nest egg, especially as you get closer to your retirement date. Fortunately, Fixed Indexed Annuities (FIAs) stand out for their ability to grant you peace of mind against market volatility while still offering potential cash value growth.

Why Fixed Indexed Annuities?

Fixed Indexed Annuities are a unique financial product that combines the benefits of both fixed and variable annuities. They offer growth potential linked to a market index, such as the S&P 500, but with the added protection of a guaranteed minimum interest rate. This means that even if the market performs poorly, your principal remains safe, and you still earn some interest.

Benefits Before Retirement

• Protection from Market Downturns: With FIAs, you don't have to worry about losing your principal due to market fluctuations. This protection is crucial for those nearing retirement, as it ensures that your savings remain intact.

• Growth Potential: While your principal is protected, you still have the opportunity to benefit from market upswings. The interest you earn is linked to a market index, providing a balance between security and growth.

• Tax-Deferred Growth: Like other annuities, FIAs offer tax-deferred growth. This means that you won't pay taxes on the interest earned until you withdraw the money, allowing your savings to grow more efficiently.

Transitioning to Retirement Income

Once any surrender period has passed and you are closer to retirement, the cash value accumulated in your Fixed Indexed Annuity can be rolled into an annuity that focuses on creating an income stream for life. This transition is seamless and ensures that you have a steady, reliable income during your retirement years.

1. Income Security: Rolling your FIA into an income annuity provides guaranteed payments for life, ensuring you won't outlive your savings.
2. Flexible Options: Many FIAs offer various payout options, allowing you to choose the one that best fits your retirement needs, whether it's a lifetime income, a specific period, or a combination.
3. Peace of Mind: Knowing that your income is secured allows you to enjoy your retirement without the constant worry of market volatility and financial instability.

Myth 4: Lifetime income can be easily generated from retirement accounts.

Reality: Besides Social Security and pensions, only annuities guarantee a stream of income that you can't outlive. 

Because you can't predict the markets, you can't be sure that you won't outlive your investment portfolio. With an annuity, however, you enter into a contract with an insurance company that will pay you a certain amount for the rest of your life, giving you the peace of mind that comes from knowing that this specific income stream is guaranteed to never run out during your lifetime.

That’s because when you invest a lump sum with an insurer today, the insurance company guarantees you will receive a monthly income payment for the rest of your life, or, if you select a joint contract, both lives. They can guarantee this income and even deliver it for less than alternative investment strategies because of mortality credits. Premiums paid by those who pass at an earlier age are leveraged to pay those who live very long lives.

Myth 5: Insurance companies retain funds upon the annuity holder's demise.

Reality: Beneficiaries can receive payments after the holder's death.

 Most deferred annuities are designed to pass any remaining funds in the account value on to your heirs/beneficiaries. With income annuities, as long as you don't select the largest payout option of "life only," you can arrange to have income payments continue on to your beneficiaries if you were to pass away prematurely. Of course, this may decrease your income amount in comparison to a life-only contract but it could be worth the tradeoff, depending on your situation and desire to leave assets to a beneficiary. Be sure to work with your financial consultant and discuss the beneficiary options available to you for each type of annuity you're considering. 

In conclusion, annuities offer versatility in saving for and receiving retirement funds. Understanding the range of annuity products and consulting a trusted financial advisor are crucial for integrating them into your investment strategy.