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5 Common Annuity Myths

Myth 1: Annuities are Only for Retirees.

Reality:

Annuities can help savers, too.

Myth 2: Annuities Cost Too Much.

Reality:

Many annuities are low cost. Others offer potentially valuable additional features at higher costs, which you should consider only if you need to address a specific risk.

Myth 3: There is No Point in Buying an Annuity for Income before Retirement.

Reality:

As you approach retirement, certain annuities can help protect your future income from market volatility, and some annuities can help protect against inflation.

Myth 4: I can easily Create Lifetime Income from my Retirement Accounts.

Reality:

Besides Social Security and pensions, only annuities guarantee a stream of income that you can’t outlive.

Myth 5: The Insurance Company gets My Money When I Die.

Reality:

Your beneficiaries can receive payment(s) after you die.

Retirement Income Percentages - Social Security, Pensions, Savings & Investments, Annuities

• 85% — Percentage of retirees ages 55-79 who are dependent on Social Security.
  
  
• 75% — Percentage of retirees who get income from a pension plan.
  
  
• 44% — Percentage of retirees who receive income from investments and taxable savings.
  
  
• 35% - Percentage of retirees who receive income from annuities.
  
  
  

Unprecedented Global Fiscal Environment Presents Significant Challenges

What’s worrisome about the current global fiscal situation is that it’s unprecedented in peacetime for so many large economies to be under such extreme fiscal duress and indebtedness. And part of the reason they are in such a fiscal black hole resides in the explosion in their structural, age-related liabilities. 

According to the IMF, the net present value of pensions, health care and long-term care out to 2050 dwarfs the costs of the banking crisis everywhere. 

Based on policy commitments in mid-2009, it is over 600% of GDP in Spain and Greece, 500% GDP in the U.S., 335% in the UK, and between 200% and 300% in other major EU countries. The precise numbers are less important than the orders of magnitude, and the implications for public policy.

It is no accident that this year, in Greece, Spain, France, the UK, and several U.S. states, for example, budgetary pressures have forced governments to implement or consider a variety of demographically driven policies. 

These include an increase in the retirement age, a temporary freeze on pensions, higher public employee contributions to pension schemes, and schemes to get citizens to pay more towards health care, or to specific conditions.

How Defined Benefit Pensions Support Retirement Security

Research from the National Institute on Retirement Security (NIRS) suggests seniors with defined-benefit pension income fare better than seniors without such income.

The Institute found seniors with a pension are less likely to be considered “poor or near poor,” and are less likely to suffer material hardships or rely on public assistance than those with income from other sources. The study was based on data from the 1996, 2001 and 2004 panels of the U.S. Census Bureau’s Survey of Income and Program Participation.

Pensions help 4.7 million Americans avoid poverty. According to NIRS, nearly twice as many households headed by someone 60 or older received Social Security benefits, than income from defined benefit plans. Still, over 1 million more households stayed above the poverty line with help from their defined-benefit plan income than from Social Security. The Institute notes that “Social Security is highly effective at helping seniors avoid poverty, but defined benefit pensions enable people to maintain a middle-class standard of living in retirement.”

Pensions substantially reduce material hardships. Over 500,000 Americans would have would have struggled to buy food if not for their defined-benefit plans. About 380,000 would have been unable to pay for rent, mortgage or bills, and 320,000 would have struggled to pay for health care.

Pensions keep 1.4 million Americans off public assistance. According to NIRS, without income from their defined-benefit plans, 1.4 million American households would have to rely on public assistance. The Institute estimates that defined-benefit plans reduced claims to public programs, excluding Medicaid, by $7.3 billion in 2006.