Financial Focus
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Interested in Fixed Annuities? Beware of Common Misconceptions

Between your 401(k) or pension, your IRA and Social Security, you hope to have enough to enjoy a comfortable retirement lifestyle. Yet, you may want, or need, to find other financial resources – one of which might be a fixed annuity, which offers a guaranteed interest rate and can be structured to provide a lifetime income stream. But you may be nervous about investing in annuities because of some negative things you’ve heard about them. How concerned should you be?

To help answer that question, let’s consider some common misconceptions about fixed annuities:

“I won’t be able to touch any of my money if I need some of it before I retire.” A fixed annuity is designed to provide you with income during your retirement years. But if you want to withdraw a significant amount of your money before you retire – when your annuity is in what’s called the “accumulation phase” – you’ll likely face a surrender charge, as well as a 10% federal tax penalty. Withdrawals may also be subject to a market value adjustment. However, to access a small percentage of your allocated funds, you might not encounter any fees. And some annuity contracts allow a 10 percent withdrawal with no penalty.

“Annuities cost too much.” Many annuities are actually low in cost. Be sure to compare the cost against the value of each additional guarantee, feature, and benefit—and only pay for what you need.

“A deferred annuity isn’t worth the wait.” If you set up a deferred annuity, it’s true that you won’t immediately start receiving income. You will, however, be able to factor future expected payments into your retirement plan.

“When I die, the insurance company keeps my money.” If your payout plan includes a beneficiary agreement, your beneficiaries will receive the remaining amount of money in the contract. Read the terms and conditions listed with an annuity, as they will spell out where the remaining money will go after you pass away.

Of course, even if the above concerns are simply misconceptions, it doesn’t mean there are no issues about which you must be aware when considering fixed annuities. For one thing, the safety of your lifetime income stream and guarantees will depend on the claims-paying ability of the insurer that issued the annuity, so you’ll want to choose a company that has demonstrated financial strength and stability. One other concern about fixed annuities: They typically don’t carry a cost of living adjustment, such as that found in Social Security. You can find annuities that do offer some inflation protection, but this feature can reduce early payments significantly.

If it’s appropriate for your situation, a fixed annuity can be a valuable addition to your retirement income. Before purchasing one, though, you’ll need to weigh all the potential benefits and issues. But don’t be swayed by misconceptions – you’ll want to base your decision on facts, rather than fears.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.

Interested in Fixed Annuities? Beware of Common Misconceptions

Short /Radio version:

To retire comfortably, you’ll likely need to draw on many sources of income – one of which might be a fixed annuity that can provide a lifetime income stream. But you might have heard some discouraging things about annuities. How concerned should you be?

Many of these negatives are misconceptions. For example, you may think you can’t touch any of your money before you retire without facing federal tax penalties. But some annuities allow a small withdrawal with no penalties.

Another misconception: The interest rate is too low to make an annuity worthwhile. In reality, a fixed annuity’s key benefit is its guaranteed interest rate and the potential for lifetime income.

You might also have heard that when you die, the insurance company that issued the annuity will keep all the money. But if your payout plan includes a beneficiary agreement, and you’ve named a beneficiary, he or she will get the remaining amount in the contract.

An annuity may or may not be right for you, but don’t be swayed by misconceptions – instead, base your decision on facts, rather than fears.

This is (FA’s NAME), your Edward Jones financial advisor at (Branch address or phone #).

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