As you approach retirement, financial security becomes a top priority. According to LIMRA, U.S. annuity sales hit a record $432.4 billion in 2024, a clear sign that more retirees are turning to annuities for guaranteed income and peace of mind.
However, annuities are often misunderstood. While they can provide lifetime income, protect against market volatility, and ensure financial stability, some salespeople have given them a bad name by prioritizing commissions over client needs.
This guide will help you understand annuities, debunk common misconceptions, and show you how to use them wisely to create a stress-free retirement.
What Are Annuities and Why Should Retirees Consider Them?
Annuities are financial products designed to provide a steady, guaranteed income stream in retirement. They act like a personal pension, ensuring you never outlive your savings.
Here are the most common types of annuities and how they work:
- Fixed Annuities – Provide predictable, guaranteed payouts, making them ideal for retirees seeking stability.
- Variable Annuities – Allow investments in the stock market, meaning your investment principal or income may fluctuate with market performance.
- Indexed Annuities – Offer the potential for growth based on a stock market index while protecting against losses.
- Immediate vs. Deferred Annuities – With an immediate annuity, you start receiving payments right away. A deferred annuity allows your money to grow before payouts begin.
Why Consider Annuities?
- They provide guaranteed lifetime income, helping you avoid running out of money in retirement.
- They grow tax-deferred, meaning you will not owe taxes until you start withdrawing funds.
- They offer protection from market downturns, giving you financial stability.
So why do annuities sometimes get a bad reputation? The answer lies in how they are sold, not in the annuities themselves.
How Bad Sales Practices Have Tarnished Annuities
While annuities can be a valuable tool for retirement, some financial salespeople use misleading tactics to sell the wrong products for the wrong reasons. Here’s what to watch out for:
- High Commissions That Lead to Bad Advice
Some salespeople push annuities not because they are right for you—but because they earn a commission of 5-7 percent or more. This can lead to:
- Selling annuities with high fees that reduce your retirement income.
- Recommending annuities when better options exist for your situation.
For example, a retiree needing easy access to cash may be sold a deferred annuity with steep surrender charges, making it difficult to access their money when needed most.
- Hidden Fees and Lack of Transparency
Some annuities come with layered fees that can reduce your returns, but bad salespeople do not always explain them upfront.
Be cautious if an advisor does not clearly outline all costs, including:
- Annual fees
- Surrender charges
- Rider costs for benefits like inflation protection
- “One-Size-Fits-All” Sales Approach
Annuities are designed for specific financial goals, primarily long-term retirement income. However, some salespeople push annuities indiscriminately, leading to poor client experiences.
- If you need liquid assets for medical expenses or travel, an annuity might not be the best fit.
- If you want guaranteed income to supplement Social Security, an annuity can be a great addition to your plan.
- High-Pressure Sales Tactics
Beware of phrases like:
- “This is a limited-time offer!” – Annuity rates change, but you should never feel rushed.
- “You need to act now, or you will regret it!” – A good advisor will give you time to make a decision.
The Truth About Annuities: How They Can Strengthen Your Retirement Plan
Despite misleading sales tactics, annuities themselves are not the problem—they can be a valuable addition to a retirement plan when used correctly.
Key Benefits of Annuities for Retirees
- Guaranteed Lifetime Income – Protection against outliving your savings.
- Tax-Deferred Growth – Your money grows faster since you do not pay taxes until withdrawal.
- Market Protection – Fixed and indexed annuities provide stability in volatile markets.
- Customizable Features – Options for inflation protection, spousal benefits, and long-term care coverage.
If structured correctly, annuities can provide peace of mind, ensuring a stable income for life.
How to Choose the Right Annuity and Avoid Bad Sales Practices
- Work with a Fiduciary Financial Advisor
A fiduciary is legally required to act in your best interest, unlike commission-based salespeople who may push expensive products.
- Ask the Right Questions
Before purchasing an annuity, ask:
- What are the fees and surrender charges?
- How does this annuity fit into my overall retirement plan?
- Can I access my money if I need it?
- Read the Fine Print
Never sign anything without fully understanding how the annuity works. If the terms seem confusing, ask for a second opinion.
- Look for Advisors Who Prioritize Transparency
Good advisors will:
- Clearly explain how they are compensated.
- Disclose all fees upfront.
- Recommend annuities that align with your personal goals.
Final Thoughts: Annuities Can Be a Smart Choice—When Used Wisely
As you prepare for retirement, annuities can offer financial stability, guaranteed income, and peace of mind—but only when used correctly.
Key Takeaways:
- Annuities are not the problem—bad sales tactics are.
- When structured properly, annuities can be an excellent tool for generating steady income in retirement.
- Avoid high-pressure sales tactics, ask questions, and work with a fiduciary to ensure you get the right annuity for your needs.
By making informed decisions, you can secure a comfortable and worry-free retirement with annuities.
Need Guidance on Annuities?
If you are considering annuities for your retirement plan, take the time to explore your options and consult a trusted financial professional to ensure you are making the best choice for your future.