Here are seven mistakes an investor can make when purchasing an annuity. In addition, this guide will provide a list of annuity cons that can hurt a retiree’s financial lifestyle.
Every retirement plan has pros and cons, good and bad, advantages and disadvantages. With this said, selecting the appropriate annuity is critical to your retirement lifestyle.
And finding the perfect annuity means finding the perfect annuity expert to sell and support that annuity.
- Buying The Wrong Annuity
- Annuity Cons
- Lose Control Over Your Investment
- Your Retirement Income May Be Low
- Your Annuity Can Earn Little To No Interest
- Income From Annuities May Not Keep Up With Inflation
- No Death Benefit
- No Liquidity
- High Fees
- next Steps
- Frequently Asked Questions
- Related Reading
- Request A Quote
Buying The Wrong Annuity
Buying the wrong annuity is a common problem in retirement planning. Financial advisors and insurance agents often sell one or two annuity plans to all of their clients. The problem with this is that every retiree is unique, and in the end, the retiree gets hurt.
I recently visited a family member’s financial advisor for their estate plan. I informed the advisor that my professional history was annuity training and selling annuities. He informed me he sells the Allianz 222 to his clients and asked me which annuities I sell. I informed him that I don’t sell one or two annuity plans; instead, I research an individual annuity for every customer.
The Allianz 222 is a suitable annuity with many flaws and is not a fit for every client. The 222 annuity is designed for a lifetime income in 10 years with zero fees to the owner. A negative with this annuity is the performance-based income, meaning the income in 10 years will be determined by the annuity’s performance, and the guarantees are very low. This leaves guesswork on how the income will perform in the future. Another negative is that retirees might change their minds and start their income before ten years, but they can’t because ten years is the waiting period.
So does this mean the Allianz 222 is for everyone? Not. This is where mistakes begin to happen.
- You can lose control over your investment.
- Your retirement income may be lower than other annuity plans.
- You can earn little to no interest.
- Your income can not keep up with inflation.
- Your annuity might not provide a death benefit to your beneficiaries.
- Your annuity might not provide liquidity for emergencies.
- Pay high fees.
Lose Control Over Your Investment
Some annuities require a retiree to give up control over the asset in exchange for a stream of income. Who wants to give up control over the money?
Your Retirement Income May Be Low
Not every annuity provides the same income to a retiree. If you purchase an annuity for lifetime income, ensure the income is the highest monthly payment an annuity can provide.
Your Annuity Can Earn Little To No Interest
Some annuities provide little to no growth potential; in the end, the retirement plan does not grow, leaving you with less money.
Income From Annuities May Not Keep Up With Inflation
Income from annuities offers a level income or an inflation-adjusted income over a retiree’s life. However, if the annuity owner starts their lifetime income between the ages of 60 and 69, this could be problematic in the future with the cost of living increasing.
No Death Benefit
Some annuities may provide the highest monthly income payment to the annuitant, but they may not realize that their heirs will receive no inheritance in the case of premature death.
An annuity may provide a bell and whistle in exchange for no liquidity, even in emergencies.
Some annuities charge higher than average fees. However, you might be able to accomplish a similar or better result at a fraction of the cost.
Annuities can provide peace of mind during retirement, but it’s essential to consider all the factors involved before purchasing. Contact us today for a free quote, and we can help you decide if an annuity is right for you. We want to ensure you have all the information necessary to make an informed decision about your financial future.
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Frequently Asked Questions
What are the negatives of annuities?
One main negative is that you can lose control over your investment with certain annuities. This means that you may not be able to access your money as easily as you would with other investments. Another negative is that your retirement income may be lower than other annuity plans. This is because annuities typically have higher fees than other retirement plans. Additionally, you can earn little to no interest on your annuity, which can disadvantage you if inflation increases. Finally, your annuity might not provide a death benefit to your beneficiaries, leaving them in a difficult financial position.
- What is the difference between an annuity and an investment contract?