Urban Legends From the Financial World
Urban legends and MythBusters are two television shows that set out to prove that popular stories we have heard for years may be just that—stories. There are some common phrases in the financial industry that you may have heard for years and are unsure if they are true.
‘It is a bad time to buy an annuity because interest rates are so low’ seems to be popular. In fact, it may be the best time to buy an annuity because interest rates are so low. Retirees that have depended upon interest income to supplement pensions may have experienced their cash flow reducing over the last three years. Many have had to renew maturing GICs into lower, and in some cases, much lower interest rates. GICs have been renewed into a one year term with the expectation that interest rates have to go up eventually, thereby renewing at the lowest current fixed term rates. This earnings uncertainty has some wondering if they will outlive their money or if they will be able to maintain their lifestyle. Unlike GICs, an annuity can provide a guaranteed monthly income for the rest of your life.
Also often repeated from one person to another is ‘If you buy an annuity and pass away shortly after the income starts, the money is lost and there will be nothing left for your heirs’. In fact, you have a choice of options to guarantee your capital - Life Cash Refund or Installment Refund, or you can always choose a Guarantee Period. Talk to your advisor about these options, the security of knowing for certain that you will not outlive your money may provide you the peace of mind you need.