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Myths and Facts About Tax-Deferred Savings With an Annuity

To determine if an annuity is right for you, it helps to know the facts. Here are some common myths you should know about annuities.

Myth: Annuities are too expensive.

Fact: While some types of annuities and some annuity features do carry fees, many of these fees are comparable to the fees associated with other investment products.

Some features of annuities — such as guaranteed lifetime income — can’t be found in other investment products and have additional fees. As you start looking at specific annuities that meet your personal retirement income needs, you should compare the fees for that annuity with other available investment options.

Myth: The investment returns on an annuity are low.

Fact: The investment returns available with annuities vary.

  • With a Fixed Indexed Annuity, the returns relate to market returns, but there are provisions against losses.
  • With a Fixed Annuity, you know up front what the rate of return will be.
  • With a Variable Annuity with Lifetime Income, you can select from a variety of investment options called subaccounts. Each of these choices comes with various returns that often are comparable to other, non-annuity investments.

Myth: I can get the benefits of an annuity with other investments.

Fact: Annuities provide savings opportunities you can’t find with other investments.

  • Most significantly, if you’ve maximized contributions to your 401(k) or IRA, an annuity allows you to have even more tax-deferred savings, with no limit by the IRS. (Some annuities have limits on the amount you can invest.)
  • Many annuities offer features that can’t be found in other investments, including return of principal, guaranteed growth, and the opportunity to convert your annuity into guaranteed lifetime income.

Get the definition of an annuity as well as answers to many frequently asked questions about tax-deferred annuities.

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The underlying funds in a variable annuity are invested in subaccounts, which are professionally managed investment options that invest in a variety of markets, such as stock, bonds or money markets.

NOTE: Subaccounts can be invested in more than just stock and/or bond markets, such as money market funds.

The investment options may provide you with potentially more income than immediate fixed annuities, but your income payments will be subject to market fluctuation.