It’s no secret that annuities can be a controversial financial product.

Some people swear by them.  Some people swear at them.

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The truth is, they can be a genuinely good fit for some retirees — and not a great idea for others. As with all things, it comes down to the unique needs and preferences of the individual.
 

This article is going to clarify two key areas of confusion that keep many retirees from seeing the true value of modern annuity planning:
 

1. How many retirees have “missed out” (educationally speaking) on the major evolutionary developments in today’s annuity contracts — updates that would naturally neutralize many of the “antique” objections still floating around from decades ago.
    

2. The four key reasons why people (mistakenly) don’t buy annuities.
   
    

A Quick Reality Check
 

We’ve all heard the horror stories:
 

• If you die, the insurance company keeps all your money and your spouse is left out in the cold.

• Annuities have sky-high fees and commissions — they only benefit the agent, not the consumer.

• You have to give up control of your money.

• They just pay your own money back to you.

• They’re terrible investments

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Here’s the truth: most of those complaints were true — thirty years ago. But they’re lingering critiques from a much older era of annuities (primarily the 1980s and 1990s). Those objections have very little applicability to today’s high-quality, institutionally rated contracts.
 

Modern annuities now:
 

• Come with little to no fees.

• Include full spousal and survivor benefits.

• Offer significant liquidity options.

• Produce proportionately higher lifetime income than most conventional withdrawal methods.

• Can be structured to preserve your principal and legacy assets.

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So when people say “no” to annuities today, it’s rarely because the math doesn’t work. It’s usually because of outdated perceptions that cloud their judgment.
 

Think about it — nearly every retiree over 55 is worried about the same handful of things:
 

• Not losing money

• Not running out of money

• Generating dependable income from their nest egg

• Staying ahead of inflation

• Leaving something behind for their loved ones (not just the IRS)

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In that light, who wouldn’t benefit from a strategy that provides higher-than-average income, increases automatically over time, shields you from market and sequence-of-returns risk, and still allows full liquidity and inheritance options?
 

The truth is, people don’t reject annuities because they don’t want those benefits — they reject them because of four persistent misunderstandings that create unnecessary fear and hesitation.

These misunderstandings have been cemented into public opinion by years of negative headlines about annuity products that don’t even exist anymore.
 

 

False Perception #1: “I’m Losing Control of My Money.”
 

When most people hear the word annuity, their first reaction is often, “I don’t want to lose control.”

They imagine sending their savings off to an insurance company, locking it away forever, and never being able to touch it again.
 

But what does “loss of control” really mean?
 

Let’s flip that question on its head. How much control did retirees really have over their portfolios during the 2008 financial crisis — or during the COVID-19 crash, when the markets dropped 30% in a matter of weeks?

Countless investors were forced to liquidate their 401(k)s or IRAs at the worst possible time just to fund retirement or emergencies.

Was that control?

Or was that panic-driven liquidation during a temporary crash that permanently damaged their retirement plans?
 

Contrast that with an annuity. Even in a “worst-case” early-surrender scenario, a 10% charge is far less damaging than a 30% market decline. The key difference is voluntary vs. involuntary loss. A market crash takes control away from you.

An annuity, on the other hand, gives it back — because your income and principal are protected by contractual guarantees instead of market moods.
 

Think of it this way: people are often terrified of annuity surrender charges, even though those charges usually start around 10% in year one and decrease gradually to zero over 7–10 years. That means the maximum possible loss inside an annuity — and only if you voluntarily choose to surrender it early — is roughly 10%. And even then, you would never need to do that, because a well-structured retirement plan always leaves a large portion of your other assets liquid and accessible for emergencies.
 

So, here is a wild question worth serious consideration:  Why on earth is a 10% annuity surrender charge considered so scary, while at the same time, a 10% market stop-loss is celebrated as a “smart” risk management tool for stock market-based accounts?
 

A stop-loss order in the stock market doesn’t protect you from a rapid drop — it simply locks in your loss once it happens.

You have no control over when that trigger gets hit if markets fall fast. But an annuity surrender charge? That’s entirely within your control — you would have to make a conscious, voluntary choice to activate it – and again, why would you ever want or need to surrender an annuity that is producing high levels of guaranteed lifetime income – especially with so much liquid money already intentionally left outside of the annuity (elsewhere in your portfolio) anyway?  
 

One scenario is an involuntary market loss you can’t prevent; the other is a voluntary choice you’d likely never need to make. Yet the market version is applauded as “strategic,” while the annuity version is vilified as “restrictive.”  It makes no sense!
 

It’s one of the great ironies of retirement planning — the same investors who accept volatility as “the price of growth” will often reject stability because it comes with a rule designed to protect them from short-term panic decisions.
 

True control isn’t about having no rules. It’s about having the right safeguards that protect your long-term income and your peace of mind.  Using a properly structured annuity is increasing the control you have over your own retirement by securing a high level of stable lifetime income that is literally impervious to downside market risk and sequence of return risk.  THAT is control!
 

 

False Perception #2: “I’m Forfeiting My Principal.”
 

This misunderstanding has two layers.
 

First, people confuse using principal with losing principal.  Read that again. 

When you set up a lifetime income annuity, your principal isn’t disappearing — it’s simply being systematically paid back to you, with interest, through predictable, guaranteed income. In other words, your money is finally doing what it was meant to do: support your lifestyle safely and efficiently instead of sitting idle in a fluctuating account statement.
 

The key insight is this: while the annuity is internally liquidating principal to generate income, it’s also producing a much higher proportionate payout than any conventional withdrawal method. That means you don’t have to dedicate nearly as much capital to generate the same level of income.

The result?

More of your portfolio remains free for long-term growth, liquidity, and legacy goals — actually preserving your overall balance over time.
 

And here’s the beautiful part: even after the annuity’s internal principal eventually reaches zero, your income doesn’t stop. It continues for life — guaranteed. By the time that point arrives, the rest of your portfolio has typically regrown and replenished whatever principal was gradually paid out inside the annuity.

The outcome is a stronger, more stable retirement foundation: steady lifetime income, sustained portfolio value, and greater long-term security.
 

Second, (and this is so very important) many assume that the very act of moving funds into an annuity automatically shrinks their net worth — as if they’ve just moved money from the “asset” column to the “gone forever” column. That’s simply not true.

You’re repositioning capital from non-guaranteed assets (like equities or cash) into a guaranteed income asset (the annuity). You still own the contract. You still own the principal. And if structured properly, your family still retains the remaining value if you pass away early.
 

We had a client earlier this year with a $2.4 million portfolio who hesitated to move $900,000 into an annuity. He feared it would instantly reduce his net worth by that amount. Once we ran the math, he realized that the annuity remained fully on his balance sheet as an income-producing asset.

Even better — because his other accounts were no longer under pressure to fund monthly income, they had time and freedom to grow even better. By year fifteen, his total household net worth was significantly higher than if he had left everything in volatile markets and had tried to create income, growth, risk management and preservation all from the same stock market “bucket.”

Annuities don’t destroy wealth. They preserve it — by safely boosting income while removing the sequence-of-returns risk that quietly ruins so many retirement plans.
 

 

False Perception #3: “Annuities Have High Fees or Commissions.”
 

Let’s unpack this misunderstanding in three parts: what the “high-fees” critique actually refers to, how big that product segment is in the overall annuity marketplace, and how modern income annuities differ.
 

1. What the Fee Critique Often Refers To
 

The “high fees” label is typically derived from variable annuities (VAs), especially those offered back in the 1990s–2000s. These might carry multiple layers of cost: mortality & expense risk charges, sub-account fund management fees, guaranteed living benefit (GLB) rider charges, surrender charges, etc. It’s not uncommon to see total “all-in” effective cost estimates of 3-4% per year in older VA models when you tally everything.
 

2. How Large a Role Do These Products Play Today?
 

Here’s the interesting fact: the “traditional” variable annuity market is now a smaller slice of the total annuity marketplace. For example, according to LIMRA, individual traditional variable annuity (VA) sales in 2024 were about $60.9 billion, whereas the total U.S. individual annuity market reached over $434 billion.  Thus, while VAs still matter, they do not represent the majority of annuity sales today — meaning the “3-4% fee” story of VAs doesn’t reflect the universe of modern fixed or indexed annuities.
 

3. How Modern Fixed/Indexed/Income Annuities Work — and How Their Costs Actually Function
 

Here’s the key differentiator:
 

• With many fixed, indexed or guaranteed-income annuities, you do not pay an ongoing “asset-under-management” fee the way you might in a mutual fund or managed account.
   

• The insurance carrier handles the internal cost of issuing and servicing the contract; the client’s growth, principal and income aren’t being eroded by a 1%+ annual management fee.
   

• Commissions to the financial professional are typically embedded in the spread (the difference between what the insurer credits and what it earns on the backing portfolio) and do not come out of your visible account balance, credited growth or income stream.
   

• If you add features like a guaranteed income rider (GLIB/GLWB) or enhanced spousal benefit, the incremental cost is often modest — e.g., about 1% extra in some rider-fee constructs — and, importantly, this fee does not reduce the guaranteed income you receive (the income is built into the contract).
   

• Because premium funding can be more efficient (i.e., a smaller pool of capital can produce relatively higher income thanks to pooling, mortality/longevity credits, and the insurer’s investment strategy), you may need less capital overall to achieve your income goal — freeing up the rest of your portfolio for growth, liquidity or legacy needs.
   

In short: modern annuities are often fee-transparent rather than “fee-heavy,” and the income advantage they provide (in many structured plans 20-60% higher than conventional withdrawal methods) means the net value proposition remains attractive even after any rider or contract cost.
 

 

False Perception #4: “Annuities Don’t Keep Up With Inflation.”
 

This is one of the most outdated assumptions still floating around the financial world. In the past, many income annuities paid a fixed amount that never increased, so retirees understandably worried about losing purchasing power.
 

But modern contract designs have evolved. Indexed income annuities and laddered income portfolios can now increase payouts systematically over time. By staggering multiple annuities with different start dates (a “ladder”), you can create income that naturally steps up every few years — mirroring inflation’s gradual climb.
 

For example, if you purchase a series of contracts that activate every five to seven years, your total household income can rise by 3–5% per year in later phases of retirement — all while maintaining guarantees and protecting principal.
 

This structure is what we call Mathematical Income Recovery — a system that allows your income to grow while your market assets recover, giving you both inflation protection and emotional peace of mind.
 

 

Another Often Overlooked Point
 

Even lifetime income annuities that pay level income for life often provide a far higher starting income than traditional market-based withdrawal strategies.
 

Consider this: a $1,000,000 deposit following the standard “4% rule” would produce just $40,000 of annual income in year one. That same $1,000,000 placed into a lifetime income annuity for someone in their mid-60s might produce closer to $75,000 per year — an 87.5% higher payout from day one.
 

So even if the annuity’s payout remains level, it’s already delivering the equivalent of 20 years of inflation adjustments upfront. Think about it: how many years of inflation-based increases would it take for $40,000 to catch up to $75,000?
 

In many cases, it simply never does. So, does it really matter that the annuity’s income doesn’t rise each year, when it already starts decades ahead?
 

And if you still prefer an income that grows predictably, that’s exactly what a laddered annuity plan accomplishes. Every five years of retirement, the next rung of your annuity ladder activates, giving you a built-in “raise” of roughly 15–25% to your lifetime income — automatically and contractually.
 

It’s that simple: level income starts higher, and laddered income grows higher. Either way, the result is greater purchasing power, protection, and peace of mind for life.
 

 

The Bottom Line
 

At National Annuity Educators, we’ve often said:

“There is no such thing as an actual annuity objection — only a lack of annuity education.”
 

Hence our very name.
 

When retirees reject annuities, it’s rarely because the math doesn’t make sense — it’s because myths and misunderstandings have been allowed to overtake logic and reason.
 

Most so-called “anti-annuity” talking points stem from products and eras that no longer exist.

Modern annuities are among the most flexible, transparent, and mathematically efficient income tools available today — especially when integrated into a laddered income strategy that blends guaranteed income, liquidity, and legacy protection.
 

It’s also important to remember: annuities are designed for income, not growth. They’re not meant to compete with the stock market — and the stock market isn’t meant to compete with them.
 

“Should I use the stock market during retirement, or buy an annuity?” is the wrong question.
 

Both are tools — each phenomenally good at doing certain things, and not very good at doing each other’s job. The stock market is designed for growth and long-term appreciation; annuities are designed for guaranteed income and stability.
 

The vast majority of modern retirees need both working together within a mathematically balanced portfolio — growth on one side, income security on the other.
 

So before deciding against an annuity, make sure it’s for real reasons, not outdated myths from a completely different era.

 

Otherwise, you could easily miss out on the powerful, practical benefits of these modern retirement income powerhouses — and the lifelong peace of mind they were built to deliver.​​​​​​​