Annuity myths and facts
Understanding the basics of annuities can help you make an informed decision that's right for you. From types to tax benefits, read our guide for everything you need to know about annuities.
Because annuities are insurance contracts that provide a guaranteed income,See note1 often after retirement, some people assume they only make sense for seniors, or that they're too complex.
But when used correctly, annuities can be a solid part of your retirement package. Here, the USAA Life Insurance Company and USAA Life Insurance Company of NY share some common misconceptions, explanations and potential benefits of annuities.
Myth: Annuities are too complicated to understand.
Fact: While individual plans may differ, annuities come in two basic forms: immediate and deferred. An immediate annuity generally requires a buyer to pay an initial lump sum to an insurer, who guarantees monthly payments beginning now and ending at a particular time (often at the individual's death). A deferred annuity delays payouts until a later date of your choice.
Myth: If you buy an immediate annuity and die early, payments stop and the insurance company keeps your money.
Fact: Immediate annuities can guarantee monthly payments for your life, or as long as specified. Some people choose a guaranteed payment period that continues until their spouse's death. Others choose to allow payments to continue until all of the initial investment has been paid back to them or their beneficiary, regardless of their death.
Myth: Deferred annuities can't provide as much as what other financial products can.
Fact: Deferred annuities can provide a unique blend of features, including:
- Guaranteed growth.
- Tax-deferred compounding.
- Lower market risks.
- Lifetime income.
Myth: Annuities are sold by salespeople motivated by high commissions.
Fact: While this may be true for some types of specialized annuity products, immediate and deferred fixed annuities generally don't carry high commission costs. Still, before purchasing any annuity, you should understand your situation, the annuity contract under consideration, and whether it's in your best interests without any sales pressure.
Myth: Guaranteed savings annuities are only for older or extremely conservative investors.
Fact: Younger generations are also seeing the benefits of annuities.
- As pensions become rare, deferred annuities can help create future guaranteed income, while providing financial stability and portfolio diversity.
- Deferred annuities offer a guaranteed monthly payment that can simplify the complex process of creating your own retirement income.
- Tax-deferred earnings can help simplify your tax reporting.
Myth: I only need my money to last as long as my life expectancy.
Fact: In 2021 life expectancy at birth, was 73.5 years for males, and 79.3 for females. However, averages can be deceiving depending on your own health and background, and how old you are now. Let's assume you're already age 65 and retired, non-smoker and in average health. A 65-year-old male has better than a 50% chance of living until age 85. A 65-year-old female in the same condition has more than a 60% chance of living until age 85. And, if these two are a married couple, there's about a 34% chance at least one of them will live until age 95.
Therefore, depending on your current age and overall health, it may be a good idea to plan beyond averages.
Myth: Once you buy an annuity, you can't move it without paying taxes.
Fact: You may be able to move an annuity tax free using IRA rollovers and tax free exchanges under IRS rules. Federal tax rules and surrender charges may apply.
Video Transcript: Grow your money with security and stability
Video duration: 1 minutes 45 seconds
Security in saving overtime: Elapsed time 0 minutes 0 seconds [00:00]
Retirement may seem far away, but not so far that it isn't on your mind. You're playing it smart, saving money and doing your research.
But some of what you've learned may leave you feeling uncertain. The big ups and downs of the market can make it seem unpredictable.
Is it possible to feel secure, protect your savings and achieve growth over time? The answer is yes.
Smooth predictable growth: Elapsed time 0 minutes 24 seconds [00:24]
With a USAA Fixed Guaranteed Growth Annuity, or FGG annuity, you'll be on a path to smooth, predictable growth.
First, your money grows with a guaranteed, competitive interest rate for a period of time. It won't matter if the economy slows down. You can watch your deposits and your daily interest grow.
Next, you get to bypass anxiety because your money isn't in the market. You keep your money safe because it's not an investment. Your money stays secure in a contract with the financial strength of USAA Life Insurance Company.
Paying taxes: Elapsed time 1 minute 0 seconds [01:00]
Another great benefit is that your growth isn't taxed. The only time you face paying taxes is when you take money out. And by then, your tax rate in retirement could be much lower. The deferred tax benefit means that all the money you grow stays in your annuity, giving you even more growth.
The FGG annuity might be what you're looking for if you want worry-free retirement planning.
Still have questions?: Elapsed time 1 minute 25 seconds [01:25]
Still have questions? Our Retirement Income Specialists can answer your questions. We can help you start a complimentary retirement income review to see how you can achieve your best possible retirement.
Speak to a USAA Retirement Income Specialist today.
Description of visual information: [Guarantees apply to certain insurance and annuity products and are subject to product terms, exclusions and limitations and the insurer's claims-paying ability and financial strength.
An annuity is a long-term insurance contract sold by an insurance company designed to provide an income, usually after retirement, that cannot be outlived. There are fees, expenses and surrender charges that may apply.
The fixed annuity guarantee against principal loss depends on the claims paying ability of the insurance company.
USAA and its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor.
Money not previously taxed is taxed as income when paid. Withdrawals before age 59½ may be subject to a 10% federal tax penalty.
Fixed Guaranteed Growth (FGG): Forms ICC1798732 10-18, ASP98784CA 10-18, ASP98782ST 10-18, ASP98783FL 10-18, ASP98785ND 10-18, ASP98863SD 10-18, NSP98868NY 10-18
Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations and contractual terms and conditions. Each company has sole financial responsibility for its own products.] End of description.