Annuities are one of the most misunderstood financial tools in retirement planning. Headlines, sales pitches, and secondhand opinions have created confusion about how they work, what they cost, and who they’re really for. The truth is, annuities are insurance products designed to provide stability, protection, and income—not quick market gains. Before dismissing them based on common misconceptions, it’s important to separate myth from fact. Below, we break down some of the most common myths about annuities and explain what you really need to know.
Some annuities—like variable annuities—can have higher fees. However, many fixed and fixed indexed annuities have no direct annual fees unless optional riders are added. The key is understanding what you’re paying for and what guarantees you’re receiving.
Most annuities allow penalty-free withdrawals (often 10% per year). While there may be surrender periods, you typically still have access to a portion of your funds.
There are several types: Fixed, Fixed Indexed, Variable, and Immediate. Each serves different goals—from guaranteed growth to lifetime income.
Fixed annuities grow at a guaranteed rate. Fixed indexed annuities grow based on a market index (with downside protection). Variable annuities grow (or decline) based on market performance.
Annuities can benefit pre-retirees in their 40s and 50s who want tax deferral and long-term income planning—not just retirees already drawing income.
Most annuities include a death benefit, meaning your remaining account value goes to your beneficiaries.
Annuities are backed by the financial strength of the issuing insurance company. While they are not FDIC insured, state guaranty associations provide protection up to certain limits.
Possibly—but annuities aren’t designed to replace aggressive investing. Many are built for:
They’re often part of a diversified retirement strategy.
Annuities are not meant to be high-growth investments. They are insurance products designed to provide guarantees and income stability.
Not all annuities require annuitization. Many modern contracts allow flexible income options without permanently giving up access to your principal.
