Last we we started talking about Myth #1: Annuities Have High Fees, this week we’re going into Myth #2: Annuities will tie up your Money and Limit your Access.

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 by a VERY large Annuity for myself!

Why do people believe this?

Let’s back up for a minute and talk about the two basic ways you have of making money with investments and financial products.

  1. Risk your principle: 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
    • This one is very familiar and very comfortable to most people
  2. Allowing someone 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 10-16 years for the highest paying contracts

When someone says “but Charlie, wouldn’t that tie up my money for 10 years?” I usually respond with my own line of questions going something like this:

Why would you need access to all of the money in your life?
Can you think of any non medical emergency that would be so important that you would spend 100% of the money you’ve saved up for retirement?

You see, no one NEEDS 100% 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.

Well most annuities today wave 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 don’t exist and no one has them.

Let’s use the example from my book Renovating Retirement. Say someone has a $1,000,000 nest egg and after their initial consultation decides they want the following breakdown:

  • IN-Case Accounts (Urgency Fund and Emergency Fund) = $100,000
  • IN-Come Accounts (Income Annuities creating lifetime paychecks) =$400,000
  • IN-Crease Accounts (What’s left over for growth and investments) =$500,000

Number 1 and Number 3 are liquid in almost all options of where you might put it so do you really think you will have an emergency so large that you will spend $600,000 and then try to tap into your annuity? Even if you do the first 10% of most annuities comes out penalty free so you’d have to blow through $640,000 for some imaginary non-medical emergency before penalties even become and issue.

Here are the reasons that no one ever needs to worry about “tying up your money” in Annuities:
  1. You’re not allowed to put more than 75% of your net worth in Annuities so you will always have 25% available for that imaginary non-medical emergency so many people are afraid of
  2. You can usually take 10% of your account every year without any penalties
  3. If you are terminally ill or go into a nursing home they wave the penalties on most contract
  4. The best Agents in this business can show you how to use the up front bonus, the one the insurance company gives you day one, to pay for penalties allowing you to get 40-50% of your money out penalty free even in the very first year of the contract.

Have no fear folks, Annuities do what they are supposed to and won’t cause you to tie up money you wish you had access to.

I hope this helps clear things up a little bit at a time.

To your amazing retirement,

Charlie Jewett
Author, Speaker, Podcast Host and Whistle-Blower

<< Introduction

<< Annuity Myth #1: Annuities Have High Fees

What you can look forward to in the next 4 weeks!

Annuity Myth #3: Annuities Have No Upside Potential and Low Rate of Return

Annuity Myth #4: Annuities Pay The Agent a High Commission

Annuity Myth #5: Annuity Companies May Go Out of Business and I’ll Lose My Money

Annuity Myth #6: Annuity Companies Will Keep All of My Money If/When I Die