Annuities have a long and storied history as one of the most reliable ways to generate guaranteed income for individuals, especially in retirement. They have been used for thousands of years to provide a stable income stream, offering security and peace of mind to those who need it most. However, in recent years, there’s been a troubling trend: annuities are being incorrectly positioned as growth vehicles, and people are becoming disillusioned when these products don't live up to unrealistic expectations.
 

The reality is that annuities are not designed to be growth tools. They are designed for income. The key to making the most of annuities is understanding their true purpose and placing them correctly within your overall financial strategy, while recognizing that growth vehicles like the stock market are meant to do the job of generating capital appreciation—not income. The frustration that many people experience with both annuities and the stock market often stems from misplaced expectations.

 

The Historical Purpose of Annuities: Income, Not Growth
 

Annuities have been around for centuries, dating back to ancient Rome when they were used to provide a steady stream of income for soldiers or retirees. In the modern world, annuities are still used for the same purpose: providing guaranteed income for life.
 

Annuities are particularly well-suited for this role because they pool risk across a large group of people, allowing individuals to receive a guaranteed payout regardless of how long they live. This is an incredibly valuable tool, especially for retirees who don’t want to worry about outliving their savings. The predictable, reliable income stream that annuities provide is far superior to any non-traditional income-producing options, such as dividends, bond yields, or even CDs, which are subject to market conditions and inflation risks.
 

But where many individuals go wrong is when they expect annuities to grow their money in the same way that the stock market can. Annuities are not built for capital appreciation. They are designed for predictable income, period. This is where the major flaw lies in the mainstream marketing and positioning of annuities.

 

The Misplaced Expectation: Annuities as Growth Vehicles
 

In today’s financial world, many annuities, especially variable annuities, are marketed with a focus on their potential for growth. They often come with promises of market-linked returns, such as those offered by annuities with equity index options. These annuities allow you to participate in market gains, which can be appealing to someone who wants the income benefits of an annuity but also expects it to grow their capital significantly.
 

The issue here is that these products tend to confuse the purpose of the annuity with that of an investment vehicle. When consumers are sold annuities as products that can provide both income and growth, they often expect to see high returns over time, much like they would from their stock market investments. This leads to disappointment when the annuity doesn’t perform like the stock market, especially during periods of low interest rates or when market-linked annuities fail to generate the high returns people expect.
 

While some annuities may offer investment options that link to market performance, it’s important to remember that annuities are inherently conservative products. They are designed to reduce risk and guarantee income, not to provide the kind of returns that come with higher-risk investments like stocks. Misleading marketing of these products has led to this disconnect between expectations and reality.

 

The Irony: Frustration with Both Annuities and the Stock Market
 

Ironically, many of the same people who become frustrated with annuities for not growing their money often express similar frustrations with the stock market. The reason? They expect safe, predictable income from a vehicle that is designed for growth and is inherently volatile. The stock market, which can deliver long-term capital appreciation, does not provide the same level of predictability or guarantees as annuities.
 

• Stock market investments are designed to grow wealth over time, but they are subject to volatility. There are no guarantees, and the value of stocks can fluctuate significantly in the short term.
   

• Annuities, on the other hand, are designed to preserve capital and provide income. They remove the volatility and uncertainty, but they don’t provide the kind of growth that equities can.
   

When people expect both the stock market and annuities to do the same thing—provide both growth and income—they set themselves up for disappointment and financial stress. The key to a successful retirement strategy is understanding the distinct roles of each tool and using them in complementary ways.

 

The Key to Success: Blending Annuities and the Stock Market in the Right Proportion
 

The real solution to this confusion lies in blending annuities with market investments in the right proportion. Each has its strengths, and when used together, they can create a balanced, well-rounded retirement strategy that provides both security and growth.
 

• Annuities for income: Use annuities to provide a guaranteed income stream that will last for life. This guarantees that you will have enough to cover essential living expenses without worrying about market fluctuations or the possibility of outliving your assets.
   

• The stock market for growth: Use the stock market or other growth-focused investments (like mutual funds, ETFs, or real estate) to build wealth and protect against inflation. The stock market offers the potential for long-term growth, but with it comes the risk of volatility and short-term losses. This is fine because the income you need is already covered by the annuity.
   

By blending these two tools, you create a portfolio that is both secure and flexible, with annuities covering your basic needs and market investments providing growth potential for future expenses or legacy goals.

 

Conclusion: The Right Tool for the Job
 

The bottom line is this: annuities are predominantly income tools, and the stock market is a growth tool. They each serve a distinct purpose, and when used in the right context, they complement each other perfectly. Annuities are great for providing predictable income, while the stock market excels at generating long-term capital appreciation.
 

The problem arises when people try to make annuities do what they’re not designed to do—grow wealth—and when they expect the stock market to provide the predictable, safe income that annuities offer. Misplaced expectations lead to frustration on both fronts. The key to a successful retirement is not relying on one or the other exclusively, but blending both in the right proportions to create a comprehensive financial plan that delivers income security and growth potential.

So, stop expecting annuities to act like the stock market and the stock market to act like annuities. Use the right tool for the job, and your retirement strategy will work in your favor.