If you've been doing your homework on annuities, you've probably run into some claims that made you think twice. Good. Skepticism is healthy.
But there are a few myths floating around that actually cost people money when they believe them without looking deeper. Here are the big three.
Myth 1: "Annuities are a scam."
Here's the truth: out of the roughly 4,000 annuity products on the market, some of them are poorly designed, and some have been sold to people who had no business owning them. That's a real problem in the industry, and I won't pretend otherwise.
But the product itself? It's an insurance contract backed by a regulated company. The issue has never been the concept — it's been the execution. A well-matched annuity can provide income that may last a lifetime. A poorly matched one creates frustration.
The difference comes down to who's helping you choose.
Myth 2: "You lose all your money when you die."
This one was more true decades ago. Today, most annuity products include death benefit provisions, return-of-premium features, or beneficiary options. Some allow your beneficiaries to continue receiving income after you're gone.
The key is knowing which features come standard and which ones have additional costs. That's worth a conversation.
Myth 3: "You can't touch your money."
Every deferred annuity has a surrender period — that's accurate. But most also include free withdrawal provisions that allow you to access a portion (typically 10% per year) without penalty. Many include waivers for specific life events, like a nursing home stay or a terminal diagnosis.
The real question isn't "can I get it back?" It's "how much do I truly need liquid vs. how much can I let work for me?"
If you've heard negative things about annuities, that's actually a good sign. It means you're going to ask better questions and make a more informed decision.
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Author of Indexed Annuity Secrets and founder of Pacific Ridgeway Insurance Solutions in San Diego. Navy veteran. Licensed financial professional, CA #4132743.
Fixed indexed annuities are insurance products, not investments. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. This article is for educational purposes only and is not financial, investment, tax, or insurance advice.