Are Annuities Bad? My Parents Told Me So, But I'm Not Sure WhyJan 05, 2022
I don't know *exactly* what annuities are, you think, but I do know they're awful!
We do that with a lot of things in our lives, right? We had an experience in the past, or a loved one has a strong opinion, and we don't remember *exactly* what the details were, but now we have formed a strong opinion 😆
And here's the interesting thing- that negative opinion in regards to annuities is probably based on how annuities used to work- a generation ago 👴🏻👵😱
If you've been following us, it probably shouldn't be a surprise that money just works differently than it did 20 years ago. That's great news for us, and just like a lot of other financial instruments, annuities have changed for the better and we can totally take advantage of that!
Here are the top 4 ways that annuities have changed over the years- and what it means for you:
- Annuities Used To: Levy high fees 📈
Now: There are dozens of zero-fee products and options available. And no, they don't have hidden charges- you know the ones, where it's a "service charge and not a fee", but it's totally a fee? That doesn't happen with the new kind of annuity- what you see is what you get, and what you see is zero fees 👍
- Annuities Used To: Force you to annuitize
This means that, once you retired, the company would pay you a set amount every year; but there was no way to access your principal, no way to change your payment structure, and nothing left over for your family once you passed on 🤨😖
In other words, you lost all custody and control of your money once you annuitized. It's a little horrifying, frankly 😱
Now: Annuities are far more flexible. For one, they do not force you to annuitize until your policy reaches maturity- at your age 120. Yes, you read that right! This changes other things about the payment structures as well- you can take guaranteed regular income (yearly or monthly) out of your policy; stop and start payments whenever you need to; and your cash value is transferred to your loved ones after you kick the bucket 🪣
You retain all custody and control of your money at all times 😁👍
- Annuities Used To: Have very poor growth
Your capital would grow over time, but not much at all. That made annuities a nice safe place to store your savings. And growth didn't matter if you cared more about the guaranteed retirement income, but guess what- that's not what people want nowadays. So...
Now: Annuities have great growth strategies that track stock market gains. AND you are guaranteed a 0% floor- that means you never lose money. Ever. Pretty cool! 📈💰
- Annuities Used To: Make it hard to access your money
The first decade you owned an annuity, you couldn't access any of your money without paying surrender fees, which would eat up both your growth and your capital. It was like putting your money under lock and key, even when you really needed it! 🔐
Now: Annuities now allow you to access up to 10% of your money per year, penalty-free, for any reason (Note that surrender charges do still exist for the first 5 to 10 years, if you want to take out more than that or cancel your contract; but you can withdraw up to 10% of it for any reason, at any time.)
Is an annuity right for you? That's a completely different topic 😆 But don't shove them out the door before you've considered what they might offer!
You have a buffet of options out there to choose from, for growing your wealth. Each option has its pros and cons, and an annuity might be a lovely addition to your long-term savings strategies.
Now That's Smart Money 🧐
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