Common Misconceptions
Post on: 2 Апрель, 2015 No Comment
![Common Misconceptions Common Misconceptions](/wp-content/uploads/2015/4/common-misconceptions_1.png)
“All indexed annuities have high surrender charges” Indexed annuities are retirement savings vehicles and not intended for short term saving. With that in mind, however, some indexed annuities have surrender periods as short as three years, after which surrender charges do not apply.
“All indexed annuities have high commissions” In reality, the average commission received by the agent selling an indexed annuity is roughly 6.5%. These commissions may range from 2% to 12% but the most significant difference between the commissions paid on an indexed annuity versus an investment such as a mutual fund is that the indexed annuity commission is paid one-time only. Conversely, the commission paid on the mutual fund, although it may be a lower percentage, is paid every year that the fund is in force. If both investments are held, for example, ten years, the commission on the indexed annuity is actually lower than the commission on the mutual fund.
“Indexed annuities are not liquid” False. Nearly all indexed annuities offer 10 percent annual withdrawals penalty free. Some offer as much as a 50% penalty free withdrawal in a year and a significant percentage of indexed annuities will allow these withdrawals as early as the first year. Many even have options for a surrender charge waiver. These features make it more liquid than one might think.
“Indexed annuities are inferior because they do not pay dividends” A unique feature of an indexed annuity is that the purchaser is not directly investing in the index. It is the insurance company that assumes the risk of the investment. As a result, dividends can not be paid to the consumer. However, the trade-off is that the consumer does not assume the risk of losing their money as a result of market volatility. As a retirement savings vehicle, this is a good trade!
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“Indexed annuity rates are low” All rates are low right now. Certificate of Deposit (CD) rates are averaging a mere 0.90 percent. If you are expecting high interest rates in any savings vehicle right now, you’re likely to be disappointed as they just don’t exist. However, indexed annuity rates are still much better than a savings account or CD and combined with the tax deferment you’ll receive, they are an attractive option.
“Indexed annuities are complex” Anything that you have never done or experienced can seem complex. But when you get past all of the misinformation out there, indexed annuities are simply a low-risk, tax deferred retirement savings option with a different way of crediting interest. It’s really just that simple.