Midland National annuity myth busting: answering your annuity questionsThursday 25 June 2020 | Reading Time: 3 minutes
Annuities are often misunderstood. Many people may find it difficult to understand and navigate these insurance products due to misinformation, rumors, and myths. As a result, many individuals are put off by the idea of purchasing an annuity.
In truth, annuities can help you generate income and provide growth opportunities while protecting you from market downturns. Let’s tackle common questions and misconceptions about annuities in order to help you make an informed decision about whether an annuity might be the right choice for you.
1. Are all annuities the same?
Although annuities share many common attributes, each annuity type has its own set of rules. In general, an annuity is a contract with an insurance company in which you pay (one-time payment or a series) to receive guaranteed income at some point in the future.
What are the different types of annuities?
Types of annuities include fixed annuities, variable annuities, and fixed index annuities. There is a range of annuity options, but typically they fall into two categories — immediate annuities and deferred annuities.
An immediate annuity allows you to make a lump-sum deposit and immediately start drawing income. With a deferred annuity, you give an insurance company money and the company pays it back at a later date based on a guaranteed interest rate. When you purchase a deferred annuity, you won’t receive income payments until you elect a payout option— typically when you retire.
To learn more about these types of annuities and Midland National annuities, you can reach out to a financial professional. He or she can help guide you, answer your questions about annuity products, and more.
2. Do all annuities have fees?
Most annuity types have no maintenance fees or annual fees. Some annuities have varying fees depending on the type of the annuity and additional benefits it may provide. It’s important to understand the different types of annuities, so you can compare their costs and benefits, and determine what product will be right for you.
Annuities can offer valuable features that aren’t typical of other investment options, like tax deferral, income guarantees, guaranteed minimum values, and/or a guaranteed minimum death benefit. If you’re uncertain about the fees associated with the annuity you think is the best fit for you, ask your financial professional for clarification.
3. Can you withdraw money from a retirement annuity?
Many annuities give you the option to withdraw a portion of the contract without a penalty. Some annuities may require a waiting period before you can access the full value of the annuity. Rules regarding early withdrawal vary — check your annuity contract for details.
You may be subject to fees and penalties for early withdrawal, but many insurance companies allow you to take up to 10% of the accumulation value per year without paying fees.
4. What happens to annuity money if you die?
Many people believe an insurance company will keep the remaining annuity value upon death. This is true of a "life-only" payment option within an annuity contract, but life-only is just one of many payment options you can choose.
If you don’t want the insurance company to keep your contract value when you die, you can choose an annuity payment option with that feature. In fact, some annuities are specifically designed to optimize your legacy for your beneficiaries. Everything the annuity can and cannot do should be written in your contract.
5. Are annuities just for older people?
Annuities can be excellent tools for accumulation and income, no matter your age. Many young workers are using annuities as a tax-deferred way to save for their future. Some people choose to wait until they are nearing retirement to purchase an annuity.
Every situation is different, it’s important to seek tax advice from a qualified tax professional when purchasing an annuity to understand any withdrawal penalties that may apply.
6. If I already have a well-rounded portfolio, do I need an annuity?
Annuities like fixed index annuities are becoming a household term as a new generation of savers continue to be drawn to growth potential and downside protection from market downturns. The opportunity for growth and protection against the unexpected can make fixed index annuities a nice fit for many portfolios.
Fixed index annuities are not a direct investment in the stock market. They are long term insurance products with guarantees backed by the issuing company. They provide the potential for interest to be credited based in part on the performance of specific indices, without the risk of loss of premium due to market downturns or
fluctuation. Although fixed index annuities guarantee no loss of premium due to market downturns, deductions from your accumulation value for additional optional benefit
riders or strategy fees associated with allocations to enhanced crediting methods could exceed interest credited to the accumulation value, which would result in loss of premium. They may not be appropriate for all clients.
Interest credits to a fixed index annuity will not mirror the actual performance of the relevant index.
The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are
insurance licensed will be paid a commission on the sale of an insurance product
Withdrawals taken prior to age 59 1/2 may be subject to IRS penalties.
A surrender during the surrender charge period could result in a loss of premium. Surrender charge structure may vary by state.
Under current law, annuities grow tax deferred. An annuity is not required for tax deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase. Neither Midland National, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. Rely on your own qualified professional.