This objection, and its close variant "annuities are sold, not bought" are widespread (but misguided) objections to annuities that suggests they are designed primarily to benefit the agent selling them, not the consumer.

This claim is not just misleading—it is absurdly false.

In reality, annuities can provide significant advantages to consumers, including safety, predictability, and income generation that often outperforms conventional investment methods.

Let’s take a deeper look at why this objection falls flat and why annuities deserve a better reputation - especially in light of the roughly $350 BILLON of new dollars flowing into annuity contracts every calendar year.
 

 

1. Commissions Never Come Out of the Client’s Pocket
 

One of the most commonly repeated objections is that annuities benefit only the agent, because they come with commissions that may seem inflated. However, this notion completely misunderstands how annuities are paid for. The commission paid to the agent never comes out of the client’s pocket. Instead, it is drawn from the insurance company's internal profits and costs, not from the client’s principal, interest, or income.
 

When you purchase an annuity, the premium you pay goes toward the product itself—the guarantees, the income riders, the insurance benefits, etc. The company then allocates a portion of its internal profits to compensate the agent. This means the annuity holder is not losing any of their own money for the agent's commission. It’s simply part of the business model of the insurance company, who has to cover distribution costs, just like any other financial product.

 

2. Safety and Predictability of Lifetime Income
 

Annuities are unique in their ability to provide guaranteed lifetime income, something almost no other financial product can offer. Annuities, particularly those with income riders, can give consumers a predictable, steady stream of income for life—regardless of market conditions. This level of certainty is incredibly valuable in retirement, as it ensures that individuals cannot outlive their income.

When compared to other retirement strategies, such as relying on CD ladders, bonds, dividends, or the infamous 4% withdrawal rule, annuities are often far more efficient. Many annuities can generate 20-40% more income annually than conventional methods. For instance, with a fixed annuity or an income annuity, retirees can sometimes receive much higher payouts than they would from the same amount of capital invested in traditional low-yield assets like CDs or bonds.

 

3. Leverage: Producing Higher Proportionate Income with Less Capital
 

Annuities also provide a unique advantage through their leverage in income production. Because of the mortality pooling and other factors that insurance companies use, an annuity can provide a higher level of income with a lower initial investment compared to other assets. This means that retirees can live comfortably on a smaller amount of capital, preserving more of their principal for long-term growth or emergency use.
 

For example, a $500,000 annuity may generate more income annually than the same amount invested in a traditional portfolio that relies on withdrawals from stocks or bonds. This provides a higher proportionate income from less capital, which is critical when planning for a long retirement. Plus, the principal can continue to grow in the background, allowing for long-term preservation.

 

4. Misguided Perceptions from Outdated Objections
 

Many of the objections against annuities are based on outdated, generalized ideas from the past—particularly from the 1980s and 1990s, when annuity products were not as advanced or consumer-friendly as they are today. Back then, some annuities had high fees, limited options, and low flexibility, leading to negative perceptions that persist even today.
 

However, the landscape has dramatically changed. Modern annuities, especially fixed indexed annuities and variable annuities with guaranteed income riders, offer flexible options, lower fees, and much greater transparency. They are more customizable than ever before, and the products available now are designed with consumer benefits in mind—providing predictable income, protection from market downturns, and growth potential tied to market indices.

 

5. Recognition & validation from the SEC and Regulatory Bodies
 

It's essential to acknowledge that even the SEC, the highest financial regulatory body in the United States, recognizes the validity of annuities as part of a well-rounded retirement plan. Annuities are treated as legitimate financial tools for retirement income and wealth preservation. Furthermore, licensed fiduciary advisors are fully permitted to receive commissions for selling annuities as part of their disclosed compensation model - without violating the Best Interest Rule of conduct that all fiduciary advisors are required to follow.  This is a clear indication that regulatory bodies not only acknowledge these products, but see them as a valid and beneficial option that is fully compatible with the best interest of consumers. 

 

Conclusion: It's Time for Skeptical Consumers to Chill Out
 

When skeptics raise objections about annuities, it’s often based on misconceptions, outdated experiences, or knee-jerk reactions to things they’ve heard without fully understanding how annuities work today. The reality is that annuities provide valuable safety, predictability, and higher income potential than many other conventional investment methods. And with commissions never coming out of the client’s pocket, it's clear that agents' compensation doesn't negatively impact the consumer.
 

Consumers should relax and recognize that annuities, when properly understood and used in the right context, are an essential tool in a well-balanced retirement plan. The SEC and fiduciary advisors know this, and so should you. Instead of dismissing annuities out of hand, take the time to consider how they might benefit your financial future.