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Looking to Buy an Annuity? You May Already Have One!

Annuities, a form of investment that can provide a future stream of income payments to their owners, are aggressively marketed in retirement plans. And, it appears that the recent market uncertainties will only exacerbate the situation. While annuities serve as an important component in retirement plans, many individuals who purchase them are unaware that they may already own one.

This is the case because annuities are a popular investment offering in retirement plans. In fact, 403(b) plans, in particular, are dominated by annuities. This is in part because annuities and mutual funds are the only permissible investment offerings in most 403(b) plans. Even in large 403(b) plans, where more mutual funds are present, there is almost always a fixed income investment that is an annuity contract. So, chances are, if a participant has a 403(b) plan, he/she already owns an annuity.

While 457(b) plans are not restricted to annuities and mutual funds, annuities are a common form of investment as well. Annuities are far less common in 401(k) plans; however, they are often used in smaller 401(k) plans, since their (generally) higher expense can offset some of the costs of these plans for recordkeepers.

Just because a participant owns an annuity in a retirement plan does not mean they have to receive an annuity benefit (i.e., a steady stream of income in retirement). In fact, nearly all annuity owners in retirement plans elect to receive their benefit in a lump-sum or a form of payment other than an annuity. However, those seeking retirement income security in the form of a guaranteed “paycheck” may not need to look outside their retirement plan to obtain such an annuity benefit. And, even if that is not the case, retirement distributions can be used to purchase an annuity benefit when a fixed income payment is desired.

Participants can determine whether they own an annuity in their retirement plan by contacting the plan’s recordkeeper. Alternately, an investment’s ticker symbol may prove useful. If the investment is a mutual fund, it will have a five-letter symbol. Annuities have a six-letter ticker symbol, or no symbol at all. This method is not foolproof (other non-mutual fund investment types lack a ticker symbol, for example), but it can be a useful method for determining whether an investment is an annuity.

Do you have any annuity questions? Feel free to ask me on LinkedIn, Twitter or at info@cammackretirement.com.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

Investment products available through Cammack LaRhette Brokerage, Inc.
Investment advisory services available through Cammack LaRhette Advisors, LLC.
Both located at 100 William Street, Suite 215, Wellesley, MA 02481 | p 781-237-2291