What Is An Annuity?
Retirement Income Insurance
The Poor Annuity
Misunderstood — Maligned — Made Fun Of
The annuity is probably the most maligned, misunderstood and made fun of insurance and financial product out there.
How all this came to be is likely due to some malicious and mischievous companies and agents. Consumers did not do their due diligence in understanding what they were being offered and weren’t explained clearly the pro’s and con’s of their annuity choice. Caveat Emptor as they say (Let the buyer beware and be responsible for their decisions).
The annuity has certainly had its fair share of bad press. But, is all this bad press warranted? Are all annuities bad for you? Are all insurance companies and agents ripping you off and getting rich off of you? Well, the simple answer is NO!
See these for an academic defense of annuities:
An Annuity Is Longevity Insurance
First and foremost, an annuity is insurance against outliving your money. Some call annuities “Longevity Insurance.” It is Lifetime Protected Income! And that my friend, is something you don’t receive from your stocks, mutual funds, ETFs, IRAs and 401Ks.
By Definition:
The word annuity itself comes from the Latin word annus, meaning “year.” Think of the word “annual.” The idea is that an annuity pays out on a yearly basis (or a yearly amount divided by 12 to get a monthly amount) a fixed sum of money to you. It is —
- Income from a capital investment paid in a series of regular payments (similar to collecting rent).
- A form of insurance or investment entitling the investor to a series of annual sums (mostly paid monthly or quarterly).
- A fixed sum of money paid to someone each year, typically for the rest of their life.
- An insurance contract issued and distributed by financial institutions with the intention of paying out invested funds in a fixed income stream starting immediately or in the future.
- A financial product that offers a guaranteed income stream…usually for retirees
FACTS: Here are a few FACTS that you should know for when your time comes to consider purchasing your annuity.
- Annuities are NOT new — they have existed since Ancient Egyptian and Roman times. Fixed annuities were offered to Presbyterian ministers in Pennsylvania as early as 1759.1
- You either already own one or you are already setting aside monthly for one. It’s your Social Security. Yes, Social Security is an annuity.
- A pension (which there aren’t many left) is an annuity.
- Did you win the lottery? Na’ I didn’t think so. But, if you did, and unless you took the lump sum, then you get an annuity payment for the rest of your life or a set number of years.
- Are legal financial products.
- Are not designed to make you money…they are designed to protect your assets and provide you with a consistent income stream.
- They are not an investment per se…they are to help protect your investments and your lifestyle and/or standard of living. While an index annuity does earn a rate of return, an annuity should not be compared to an investment in equities.
Sources:
Important Notice: The information published on this web site is first and foremost, educational in nature and is not intended to be a recommendation to purchase an annuity or any specific insurance or financial product. You are strongly urged to consult with financial planning, tax, and legal advisors to determine if an annuity is suitable in your financial situation. Annuities are not deposits of or guaranteed by any bank and are not insured by the FDIC or any other agency of the U.S. government. All annuity guarantees are subject to the financial strength of the insurance company.
