The Truth About Annuities: Breaking Down Common Myths
Annuities have been around for decades, but despite their longevity, they remain one of the most misunderstood financial products in retirement planning. Misinformation and outdated assumptions keep many people from considering them as part of a smart, secure retirement strategy.
So let’s separate myth from fact and clear up the confusion once and for all.
Myth #1: “Annuities are too expensive.”
While some annuities come with optional riders that have fees, many products—especially fixed annuities and fixed indexed annuities—have no annual fees at all. Unlike mutual funds or advisory accounts, you’re not paying ongoing management costs.
Myth #2: “When I die, the insurance company keeps my money.”
Not true. You can name one or more beneficiaries who will receive the remaining value of your contract. And some annuities even offer enhanced death benefits or guaranteed income for your spouse.
Myth #3: “Annuities don’t grow fast enough.”
Compared to stocks? Sure. But fixed annuities offer guaranteed compound interest, and indexed annuities provide upside potential with zero market risk. In today’s volatile market, that kind of safety and consistency is exactly what many pre-retirees are looking for.
At Diversified Insurance Brokers, we help you sort through the noise and find annuities that offer real benefits without the fluff—or the fearmongering.
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FAQs: The Truth About Annuities
What is the real purpose of an annuity?
Annuities are designed to provide guaranteed income, protect principal, and offer tax-deferred growth. They help retirees create predictable income that is not tied to market fluctuations.
Are annuities safe?
Annuities are backed by the financial strength of the issuing insurer and follow strict state regulations. While not FDIC-insured, fixed and indexed annuities provide contractual guarantees that protect principal.
Do all annuities have high fees?
No. Many fixed annuities, MYGAs, and fixed indexed annuities have no annual fees. Fees generally apply only when optional riders are added or in variable annuity products.
Can annuities lose money?
Fixed and fixed indexed annuities cannot lose principal due to market downturns. Variable annuities can lose value because they contain market-based investments.
Why do some people say annuities are bad?
Negative opinions usually stem from misunderstanding how annuities work, confusing them with high-fee variable annuities, or focusing on surrender periods without considering long-term guarantees.
Are annuities good for retirement income?
Yes. Many retirees use annuities to create lifetime income or stable interest-based growth. They provide a predictable stream of income that can supplement Social Security and pensions.
How long do surrender periods last?
Surrender periods generally range from 3 to 15 years depending on the product. Many contracts allow penalty-free withdrawals of up to 10% per year.
Can I leave money to beneficiaries with an annuity?
Yes. Most annuities include a death benefit that passes remaining value to your beneficiaries, avoiding probate in many cases.
Are annuities taxed?
Growth inside an annuity is tax-deferred. Withdrawals are taxed as ordinary income. If purchased with after-tax money, a portion of each withdrawal may be tax-free.
How do I compare annuities?
Compare interest rates, income payout options, surrender terms, financial strength ratings, and features such as caps, spreads, or income riders. Reviewing multiple carriers can help you find the best fit.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
