8 Things Everyone Over 65 Should Know About Annuities

With Annuity Awareness Month being in June, we thought this was a perfect time to explore some popular annuity concerns.

Annuities are a financial option for retirement planning that many seniors use to sustain their income throughout their golden years. However, there is also a lot of myth and misleading information about annuities that we want to debunk.

As we get going, please note that we are not your financial advisors, and this blog shouldn’t be taken as financial advice. If you have questions about your individual circumstances, feel free to reach out to a member of our team.

So, without further ado, here’s 8 things everyone over 65 should know about annuities.

1: What Annuities Are

It’s difficult to decide if an annuity is right for you if you’re uncertain and don’t even understand what they are.

An annuity is a retirement savings vehicle. It’s not technically an investment, because you’re not actually investing in the market.

However, you do receive a return on your money that is designed to help you save for retirement.

You can also use an annuity to pass on money to your beneficiaries. Annuities can help you avoid probate at death, which can be expensive and time consuming.

Most individuals use annuities as a retirement savings vehicle, while keeping the peace of mind that that money can be easily transferred or dispersed to named beneficiaries at death.

2: How Annuities Work

Annuities can provide steady cash flow to people during their retirement years, helping quiet the fears of outliving their savings. Annuities can also help retirees preserve and grow their nest egg with more competitive interest rates than the bank, but none of the risk associated with the stock market.

An annuity requires a contract between you and the insurance company.

You deposit a lump sum (or periodic payments), and the insurance company delivers on their promise, which is outlined in the contract.

A common example of a contract is a certain rate of return on the deposit. For example, you might deposit a lump sum of $50,000. The insurance carrier then delivers on their promise of a 4% interest rate over the course of, say, 5 years.

3: Annuities Are Not Short-Term Financial Options  

If you are wanting to use your potential annuity deposit to buy a new car next year or for an upcoming vacation, you shouldn’t put that money into a multi-year annuity.

An annuity in retirement is ideal for money that would be sitting around and not making any interest otherwise. Think of it like a long-term savings option.

Many plans designed for seniors offer free withdrawal privileges, so you can access your earned interest, or even up to 10% of your principal, after the first year.

But if you think you’re going to need that money sooner than later, it’s probably best to not put them into an annuity.  

4: Variable Annuities Are Not Great Options for Seniors

Variable annuities are a very long-term investment strategy. That is why we do not recommend them to anyone over age 65. At Medicare Allies, we only sell fixed annuities and fixed index annuities to our senior clients.  

Variable annuities often have fees, which might cause you to lose money over the course of the contract if you get a variable annuity too late in life.

Fixed annuities are the safer option when you are wanting a retirement financial option after a certain age.

5: You Need to Make Sure Your Provider Is Legitimate

Just like with any financial transaction, it's important to make sure you’re dealing with a legitimate company and not falling for fraud. When seeking an annuity, look for a reputable source and avoid sharing personal information until you have confirmed that your funds will be safe with that insurance provider.  

Check with your state financial industry regulatory authority, FINRA, or your state’s insurance department to ensure the insurance company and their product are legitimate before signing anything.

It's also a good sign if the insurance company has a good reputation and a long history of providing satisfactory customer service.

6: Watch Out for Popular Annuity Scams

Scams targeting seniors are tragically all too commonplace nowadays, but we can avoid that headache through research and watching for red flags.

Selling Unsuitable Products for the Commission

Most annuity agents receive a commission for annuity sales. That's not a problem in and of itself, but it becomes a problem if they put the commission earnings over the needs of their client.

If you feel you are being pressured to choose a plan that doesn’t fit your needs, that agent isn’t serving you. Make sure you are researching your options before you meet with an agent or seeking a second opinion from a financial advisor to avoid falling for this common trick.  

Using High-Pressure Sales Tactics

Be wary of agents who try to pressure you into buying an annuity.

Scare tactics, aggressive sales pitches, and offering you “today-only” deals are huge red flags. If you find yourself being pressured into a sale, go somewhere else.

You should always be given enough time to review plan materials and make a thoughtful decision about your finances.    

Not Being Told About Potential Risks

Some types of annuities inherently have higher risks than others, especially if you’re looking at variable plans.

If your agent is ignoring risks or telling you it’s impossible to lose money in an annuity, that could be a red flag. No one should be making financial decisions until they know all the facts, even for safer options like we offer at Medicare Allies.

Contract Fraud

This can happen either through fraudulent contracts that put the agent as your beneficiary, and therefore stealing your money, or faking the credentials needed to offer plans in the first place by creating fake insurance companies.

Always read the fine print and do your market research! If no one else has heard of the company, chances are, it’s not legit.

7: Choose an Appropriate Contract Length

You don’t want a contract that is so long you’ll never get to reap the benefits of your plan. Imagine if we tried to sell a 20-year plan to an 80-year-old. Long contract lengths for retirees are not in your best interest. That’s why we recommend choosing a contract length that gives you plenty of time to enjoy that hard-earned cash.  

The most common contract length is 5 years, but we can even go as short as 1 year so you can see if you like it. In most cases, we don’t advise going over 10 years in this stage of life.

8: Understand Your Fees

Some annuities can have fees, and if you don’t understand how those fees work, you may be surprised by them when you start getting statements.  

Here at Medicare Allies, we almost exclusively sell fee-free annuities to avoid any headaches or unexpected loss of principal. This ensures you never lose any of your hard-earned cash – it will continue to grow over time with no risk of fees eating away at it.

Conclusion

Just like with any financial option, annuities are going to require a little homework. Whether that be to explore your options or to research the legitimacy of your provider, putting in a little time at the beginning can save you a lot of problems later on.

Annuities can help you sustain your income well into your senior years. If you are considering adding annuities to your financial planning portfolio, give us a call! We are ready to help you preserve and build upon your nest egg and build up your future earnings.