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The Truth About Annuities

Annuities can help you avoid outliving your income during retirement. Are they the best retirement tool for your goals and needs? Sellers of annuities will often tell you that buying annuities is a no-brainer. Why is that?

Read on to discover the reason.



An Annuity Defined

An annuity is a contract you buy that promises a guaranteed income for an agreed period. You will receive an agreed-upon monthly income with the company that sold you the annuity.

You can buy an annuity with a lump-sum payment or a series of payments to the insurance company. The annuity seller invests your money, which allows it to grow on a tax-deferred basis.

Annuities guarantee your payments by protecting your initial investment if they underperform. Your monthly income may, however, decrease due to the reduced value of your annuity.


The Hidden Truth About Annuities

The sales of annuities in 2023 increased by 23% over the 2022 sales to reach a record-high $385.4 billion. Independent agents and broker-dealers made a large chunk of these sales. Why are annuities such a popular retirement option?

Annuity sellers enjoy large commissions they receive from annuity sales. To illustrate: We recently worked with a couple approaching retirement age. Before meeting us, they consulted with a broker.

The broker gave them a pleasant experience. The couple were on course to buy a run-of-the-mill annuity worth $8 million they could afford.

The couple made an astonishing discovery before signing the paperwork. They learned the broker would receive an $800,000 commission on the annuity sale—a 10% commission.

Can an independent agent or broker act in the client’s best interest if they stand to gain that much money? Annuity sales commissions range from 1% to 10%, but they can be higher depending on the complexity of the annuity.

The finance professional and the annuity issuer may have soft money arrangements. Here, the financial professional receives an incentive to sell a certain number of annuities.


The Need for a Fiduciary Financial Advisor

It’s concerning to work with any financial professional whose sole purpose is to sell you on one retirement approach. There could be other retirement products that may better suit your circumstances. This is where a fiduciary financial professional comes in. Their interest is not on how much they can earn, but on what’s best for their client.

A fiduciary deciphers and provides insight into various retirement products. Their primary purpose is to find an option that suits your retirement needs and goals. While they get paid for their service, their main priority is to serve you.

Do you remember the couple mentioned earlier? They came to us—a fiduciary—and we better understood their financial picture and retirement needs. We presented them with various retirement avenues in a welcoming and non-salesy environment. They made a well-informed decision.


Conclusion

Annuities can be a good option for receiving a guaranteed monthly income. Work with a fiduciary to ensure an annuity is the best retirement option.

If you’re looking for a fiduciary financial advisor, contact JDH Wealth for an initial conversation.

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