Five Common Annuity Myths Debunked

Annuities can help you round out our retirement plan. You can use an annuity to accumulate assets for retirement or generate income during your lifetime or a beneficiary’s lifetime. For military members who already have a pension, TSP, and Social Security as a foundation, an annuity can serve as an additional layer of guaranteed income and financial security.

You can deposit a sum of money with a life insurance company in exchange for a guarantee of future fixed income over a set period of time, or even your lifetime.

There are three kinds of annuities:

• Variable annuities mimic traditional retirement accounts because they’re tied to the market.
• Fixed annuities provide a guaranteed interest rate
• Indexed annuities provide a guaranteed minimum interest rate but allow for growth tied to an equity market index.

You may have already heard about annuities, but there are some common myths worth addressing.

Myth #1: Annuities Aren’t Flexible.

Annuity owners can choose how much money to fund their annuity with, when to begin receiving payments and what kind of payout option they prefer. Depending on the product, an annuity may be able to accumulate indefinitely or offer the owner the opportunity to make subsequent deposits. This flexibility makes annuities a viable option for military members at various stages of their career and retirement planning.

Myth #2: Annuities Are Only Good for People Who Don’t Know How to Invest.

Fixed annuities are financial instruments that reduce overall portfolio risk through diversification while providing predictable and steady growth of assets, regardless of market volatility.

Regardless of your investment experience, you cannot outlive a life income annuity, unlike alternative investment options. This makes annuities a good choice for anyone who wants a safe, predictable, long-lasting investment, including experienced investors who want to reduce risk as they approach retirement. Annuities provide breathing room for those living on a fixed income with stable, supplemental payments.

Myth #3: I Don’t Need an Annuity If I have Other Retirement Accounts.

While investing in your Thrift Savings Plan, 401(k), or IRA is always a good idea, retirement accounts do not have the same built-in safety net that comes with a fixed annuity’s life income payout options.

For military members, this is especially relevant. Even with a pension and TSP in place, an annuity can help diversify your retirement income by providing an additional guaranteed payment stream. This reduces the risk of depleting your savings and may ensure that you can maintain your desired standard of living throughout retirement.

Myth #4: Annuities Are Only for Older People.

While immediate annuities are more often used by people in retirement, deferred annuities offer maximum growth potential when started early. This allows for a longer accumulation phase and more compounding of interest earnings.

Military members who have reached their annual TSP and IRA contribution limits can use a deferred annuity as an additional tax-deferred option to grow their savings while avoiding market volatility. Starting early gives the annuity more time to compound and ultimately generate a larger income stream in retirement.

Myth #5: I’m Guaranteed to Earn a Greater Return by Keeping My Money Invested Elsewhere.

Market-invested accounts never carry guarantees. All potential returns depend on your asset mix, risk tolerance, and the amount of time you invest. Money invested in the stock market can earn more than money invested into an annuity over the same time horizon, but the opposite scenario is also possible. A long recession could cost you some of your principal investment and may earn a lower rate of return than expected when you’re ready to withdraw funds.

Adding an annuity to your portfolio allows you to diversify your income streams in retirement and help mitigate risk. For military retirees who already rely on a pension for predictable monthly income, an annuity can reinforce that stability while allowing other investments to remain in growth-oriented assets.

Are Annuities Right for Your Military Retirement Plan?

People don’t always think of annuities when it comes to retirement planning, but having one in your portfolio can provide a margin of safety, predictable income, and an enhanced standard of living during retirement. As with any financial product, shop around and compare rates and terms from multiple providers before committing. Consider consulting with a fee-only financial planner familiar with military benefits to determine whether an annuity makes sense for your specific situation.

Meet the Author

Navy Mutual

Navy Mutual is a nonprofit, federally tax-exempt Veterans Service Organization. Established as the Navy Mutual Aid Association in 1879, it is the oldest Congressionally recognized Veterans Service...

Read full bio