Annuity Myth #2: Annuities will tie up my money, limit my access

Renovating Retirement

There are several myths associated with annuities.

One of them is the belief that annuities will tie up your money and limit your access to funds.

“If I had a dime for every time a prospective client said to me, ‘I don’t want to tie up my money, or ‘Won’t that tie up my money if I put it into an annuity?’ I could buy a very large annuity for myself,” said Charlie Jewett of Renovating Retirement.

Jewett says there are two basic ways to make money with investments and financial products. The first way is to risk your principle.  This one, according to Jewett, is familiar and very comfortable to most people.

“This would be the familiar stocks, bonds, mutual funds, gold, real estate etc., things that can go up or down where you are putting money at risk and hoping for the best,” said Jewett.

The second option you have for growing your money is allowing someone else to use it for a certain timeframe. Examples of this would be loans, CDs, annuities, and cash value life insurance policies.

“Most of these will have surrender penalties if you don’t let the other party use the money for as long as they need to in order for them to make a fair profit. Annuities fall into this category with surrender penalty schedules ranging from 10 to 16 years for the highest-paying contracts,” said Jewett. “Here’s the thing. They’re not tied up, because almost every annuity that’s available today gives you 10-percent for free. So if you do have those emergencies, you can get up to 10 percent. Say somebody puts $200,000 into an annuity. Twenty-thousand dollars a year, they can get out with no penalties if they do have that emergency.”

Jewett believes no one needs 100-percent penalty-free access to all of the money in their life, because no one would ever spend all of their nest egg unless they were very sick and trying to save their lives.

“Most annuities today waive all of your penalties if you are that sick, so we are talking about non-medical emergencies that would cause you to want to spend every dime you have leaving yourself with nothing left to create retirement income. Those imaginary emergencies just don’t exist, and no one has them. So annuities are not the big bad wolf they say they are. They’re actually a super important tool for retirement,” Jewett explained.

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