Most people ask me: "Are annuities good?" The question I wish more people asked is: "What makes an annuity BAD?" Because the honest answer is that a lot of annuities out there aren't great, and knowing the red flags is more valuable than hearing a pitch about the good ones. Here's what I look for.
Red flags worth knowing.
- A surrender period longer than 10 years. Some products run 12 to 15. There's rarely a good reason for you to accept that.
- Fees without a benefit attached. If there's an annual charge and nobody can explain exactly what it buys you, that's a problem.
- "Bonus" rates that aren't free. Upfront bonuses are often paid for with a longer surrender period, lower caps, or a vesting schedule. Ask what the bonus costs.
- A weak carrier. Anything rated below A- by A.M. Best deserves a hard look. You're trusting this company for decades.
- Pressure. A deadline, a "rates change Friday," a push to sign in the first meeting. Good products survive a week of thinking.
- All of your money. If someone wants to move 80% or more of your savings into a single annuity, walk away. It's a tool for a portion, not the whole plan.
The question that cuts through it.
"Why this product, for me, instead of the alternatives?" A good answer is specific: your income gap, your timeline, your need for liquidity. A bad answer is a feature list.
If you've been shown something and you're not sure which side of the line it falls on, send it over. I'll tell you what I see — including if it's good.
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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.