What Most People Get Wrong About Annuities: The Top 5 Myths Debunked
If you’ve ever searched for information on annuities, you’ve likely seen mixed opinions—some calling them powerful retirement tools, others calling them a mistake. The truth lies somewhere in the middle, and it starts with understanding what annuities actually are—and what they aren’t. Let’s break down the five most common annuity myths and get to the truth behind them.
Myth #1: Annuities lock up your money forever.
Many people think putting money in an annuity means saying goodbye to flexibility. In reality, most annuities allow 10% penalty-free withdrawals annually, and some even offer liquidity features like return of premium or enhanced access during long-term care needs. It’s all about choosing the right product.
Myth #2: Annuities are too expensive.
Not all annuities carry high fees. In fact, fixed annuities and fixed indexed annuities often come with no annual fees at all. Fees are typically associated with optional riders, such as guaranteed income or enhanced death benefits—and these can offer significant value depending on your retirement goals.
Myth #3: If I die, the insurance company keeps my money.
This is one of the biggest misconceptions. Most annuities allow you to designate beneficiaries, so any remaining value passes directly to your loved ones—avoiding probate. Some contracts even include enhanced death benefit riders for additional protection.
Myth #4: Annuities don’t grow fast enough.
Compared to riskier investments like stocks, annuities offer safer, more predictable growth. Fixed indexed annuities, for example, provide market-linked upside potential with no downside risk—making them ideal for conservative investors who want growth without volatility.
Myth #5: I’m too young to consider an annuity.
Many pre-retirees in their 40s and 50s are using annuities to lock in guaranteed income later or preserve tax-deferred growth. The earlier you start planning, the more options you have.
At Diversified Insurance Brokers, we help clients separate fact from fiction so they can make informed, confident retirement decisions.
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FAQs: Annuity Myths
Myth: All annuities are high-risk investments.
Reality: Many annuities are designed to be conservative, not high risk. Fixed and multi-year guaranteed annuities (MYGAs) emphasize principal protection and guaranteed interest, while fixed indexed annuities offer market-linked growth with a built-in downside floor.
Myth: Annuities are only for “very old” retirees.
Reality: People in their 50s and 60s commonly use annuities to lock in future income, protect a portion of their nest egg, or balance out stock-market exposure. They can play a role well before full retirement age.
Myth: If I buy an annuity, the insurance company keeps my money when I die.
Reality: Most modern annuities include clear death benefit options. You can structure contracts so remaining value goes to beneficiaries, or use joint-life and period-certain payout choices to protect a spouse or heirs.
Myth: Annuities always have high fees.
Reality: Some variable annuities and optional riders can carry higher fees, but many fixed annuities, MYGAs, and fixed indexed annuities have little or no explicit annual policy fee. It’s important to understand how your specific contract works, including any riders. For more detail, see Do Annuities Have Fees?
Myth: Fixed indexed annuities are “too good to be true.”
Reality: Fixed indexed annuities use caps, participation rates, and spreads to share a portion of index growth while protecting your principal from market loss. They trade some upside potential for downside protection. You can learn more on How Does a Fixed Indexed Annuity Work?
Myth: I’ll lose access to my money if I buy an annuity.
Reality: Annuities include surrender periods, but most contracts allow annual penalty-free withdrawals, often up to 10% of the account value. Many also include additional access provisions for nursing home stays, terminal illness, or income riders.
Myth: Annuities are bad in volatile markets.
Reality: Fixed and fixed indexed annuities are often used precisely because of volatility. They protect principal and can provide guaranteed income, helping reduce sequence-of-returns risk. See also How to Protect Your Funds in Retirement.
Myth: Annuities are too complex for most people to understand.
Reality: While contract language can be technical, the core ideas—guaranteed interest, income options, and principal protection—are straightforward when explained clearly. Working with an independent advisor can help you compare options in plain language.
Myth: Annuities are always a bad deal compared to the stock market.
Reality: Annuities are not designed to “beat” stock market returns. They are meant to provide guarantees: steady income, principal protection, and known minimum outcomes. Many retirees use them alongside market investments to balance risk and stability.
Myth: I can’t combine annuities with Social Security or other income sources.
Reality: Annuities are often used to complement Social Security, pensions, and investment accounts. Together, they can create a layered income plan where guaranteed sources cover essentials and investments handle long-term growth and extras.
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.
