Annuities Decoded: What They Are, What They’re Not, and When They Actually Make Sense
Welcome to the first issue of The Insurance Standard — your biweekly source for intelligent, independent analysis of health and life insurance.
We begin with one of the most sold, most misunderstood financial products in America: annuities.
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Used correctly, annuities can protect your income and reduce risk.
Used blindly, they can quietly siphon away retirement dollars in the name of “guarantees.”
Let’s break them down.
At its core, an annuity is a contract between you and an insurance company:
You give them a sum of money — either all at once or over time — and they agree to pay you in the future, either in a lump sum or over a set period.
There are four main types you’ll hear about:
Despite the marketing, annuities are not:
A substitute for emergency savings
A guaranteed growth vehicle
Always “better than the market”
Free from fees (even when sold as “no-fee” products)
Many annuities come with:
High surrender charges (often 5–10 years locked up)
Steep fees on riders and guarantees
Limited liquidity (often 10% per year without penalty)
Annuities can work well for:
Longevity risk
You want guaranteed income that you can’t outlive.Risk-averse retirees
You prefer some market upside without the downside.Tax deferral
You’re deferring taxes on gains until you withdraw later.Legacy protection
Some annuities can include death benefits or income riders for a spouse.
But they’re not ideal for:
Short-term investing
People who need full liquidity
DIY investors who don’t understand how annuity mechanics work
Scenario 1: Misuse
A 60-year-old is sold a 10-year indexed annuity for her “savings” — but needs the money in five years for her daughter’s college. She gets hit with surrender charges for early withdrawal.
Scenario 2: Strategic Use
A 68-year-old couple allocates a portion of their IRA into a fixed indexed annuity with an income rider, guaranteeing lifetime income starting at 72 — removing market risk and ensuring they don’t outlive their assets.
The Key Questions to Ask Before Buying:
What is the surrender period?
Are there fees or riders?
What is the income guarantee, and when does it begin?
Is there a death benefit, and is it worth the cost?
What portion of my money will still be liquid?
Final Thought:
Annuities are tools.
They are not inherently good or bad — but like any tool, they’re only effective when used for the right job, with the full picture in view.
The problem isn’t annuities.
It’s how they're sold, misunderstood, and misused.
Until next time,
Dan Mueller
Editor, The Insurance Standard
Follow me on Substack @theinsurancestandard
