Common Annuity Myths

Annuities are surrounded by myths and misinformation—often fueled by outdated advice or one-size-fits-all opinions. Unfortunately, these myths can prevent people from exploring annuities as a valuable part of a secure, income-focused retirement plan. The truth is, today’s annuities offer greater flexibility, transparency, and growth potential than ever before. Let’s clear up the confusion so you can make informed decisions about your financial future.

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Common Myths About Annuities

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Annuities are Only For Retirees

Myth: Annuities Are Only for Retirees

While annuities are often associated with retirement, they can benefit individuals at many stages of life—not just those already retired. Today’s annuity options are more flexible than ever and can serve as powerful tools for both accumulating wealth and securing guaranteed income.

For Those Still Working:
Deferred annuities are ideal for long-term savers, especially those who have already maxed out contributions to their 401(k) or IRA. These annuities grow tax-deferred, helping you build additional retirement savings outside of traditional accounts. Later, you can convert them into guaranteed income for life or for a set period—on your own timeline.

For Those Nearing or in Retirement:
Immediate annuities allow you to turn a lump sum into guaranteed income that starts right away. This is perfect for those who want to create a dependable cash flow and reduce reliance on market-based withdrawals.

Whether you’re planning ahead or need income now, annuities can be tailored to fit your goals. It’s not about age—it’s about using the right tool at the right time. Annuities aren’t just for retirees; they’re for anyone who wants security, tax advantages, and predictable income in their financial strategy.
Investing in the Market is Always Smarter Than Annuities

Myth: Investing in the Market Is Always Smarter Than Annuities

It’s a common belief that annuities can’t compete with the returns of traditional market investments. But this view misses the bigger picture—not every financial strategy is about chasing the highest return. Annuities and market-based investments serve different purposes, and for many people, the right approach is a blend of both.

Here’s how annuities can complement—and in some cases, strengthen—your overall financial plan:

1. Fixed Annuities: Stability Over Volatility
Fixed annuities offer guaranteed interest and principal protection, making them an attractive option for those looking to safeguard their savings. They provide steady growth without exposure to stock market fluctuations—especially valuable during volatile or declining markets.

2. Variable Annuities: Growth with Market Exposure
Variable annuities allow you to invest in market-based subaccounts, offering long-term growth potential similar to mutual funds. While they carry investment risk, they also offer optional riders for income or legacy protection—adding structure and security to an otherwise risky asset.

3. Structured Annuities: The Best of Both Worlds
Structured annuities (or registered index-linked annuities) provide limited market exposure with downside protection. They offer a balance between growth and safety—giving you the ability to benefit from moderate market gains while reducing the risk of significant loss.

Annuities aren’t meant to replace the market—they’re meant to enhance your financial strategy by adding stability, predictability, and income protection. The smartest portfolio isn’t just aggressive or conservative—it’s built around your risk tolerance, income needs, and retirement goals.
Annuities Are Overpriced
Myth: Annuities Are Overpriced

It’s true that some annuities come with fees—but the idea that all annuities are overpriced is a misconception. In reality, the cost of an annuity depends entirely on the type of annuity and the features it includes. Many modern annuities offer valuable benefits with little to no cost at all.

Structured Annuities: Low Fees, Strong Protection
Many structured or indexed annuities have low or no annual fees, especially if you don’t add optional income riders. These products offer a powerful combination of market-linked growth potential and downside protection—with fewer costs than you might expect.

Value vs. Cost
When evaluating an annuity, it’s important to consider the value it provides:

Tax-deferred growth

Guaranteed income for life

Principal protection in down markets

Legacy benefits and income riders

Compared to advisory fees on managed portfolios or mutual fund expense ratios, annuity costs can be very competitive—particularly when you consider the security and income guarantees they deliver.

Annuities aren’t inherently expensive—they’re structured to deliver long-term stability and protection, and when chosen carefully, they can offer exceptional value relative to their cost.
Annuities Lack Liquidity and Flexibility

Myth: Annuities Lack Liquidity and Flexibility

One of the most common misconceptions about annuities is that your money is completely locked up. While annuities are designed as long-term financial tools, many contracts offer built-in flexibility and access features—even during the surrender charge period.

Penalty-Free Withdrawals
Most modern annuities allow you to withdraw up to 10% of the contract value per year without penalty. Some even let you access your original premium contributions during the surrender period, providing more liquidity than many people realize.

Post-Surrender Flexibility
After the surrender charge period ends—often in as little as 3 to 7 years—you’ll have full access to your annuity’s value with no penalties. At that point, your annuity becomes a fully liquid asset, with the option to convert it into income, take withdrawals, or transfer it elsewhere.

Customizable Liquidity Features
Some annuities offer optional riders or waivers for qualified hardships, nursing home stays, or terminal illness—giving you added flexibility if life takes an unexpected turn.

The key is choosing the right annuity with the terms, surrender period, and liquidity options that fit your needs. With proper planning, annuities can offer both long-term security and short-term flexibility—without locking you out of your money.
Annuities Aren't Tax Efficient

Myth: Annuities Aren’t Tax Efficient

Contrary to popular belief, annuities can be a highly tax-efficient tool within a retirement strategy. Like traditional retirement accounts, annuities offer tax-deferred growth, allowing your money to compound over time without annual taxation on gains. You only pay taxes when you begin taking withdrawals—often in retirement, when your income and tax bracket may be lower.

When funded with after-tax dollars, a portion of your withdrawals (representing your original premium) is even excluded from taxation. And when held within a Roth IRA or Roth 401(k), qualified withdrawals from a Roth annuity can be entirely tax-free—combining the long-term security of an annuity with the tax advantages of a Roth account.

Annuities offer flexibility to support both tax-deferred and tax-free strategies, depending on how they’re structured. When used correctly, they can play a powerful role in reducing your lifetime tax burden and enhancing retirement income efficiency.
When I Die, the Insurance Company Won't Keep My Money

Myth: When I Die, the Insurance Company Keeps My Money

A common myth about annuities is that if you pass away, the insurance company keeps the remaining balance. While this may apply to certain immediate annuities with no refund or period-certain options, most modern annuities are designed to protect your legacy. With structured, fixed, or variable annuities, your beneficiaries typically inherit any remaining contract value, and most products guarantee they’ll receive at least the amount you originally invested—minus any prior withdrawals.

For those who want to maximize the benefit passed on, many annuities offer optional enhanced death benefit riders, allowing you to increase the value left to your loved ones. These features can be tailored to align with your estate planning and legacy goals, ensuring your annuity remains a valuable asset—not a lost one. The right annuity doesn’t just provide lifetime income—it also helps preserve wealth for the next generation.

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