I Was Told Annuities Were Terrible. Here Is What I Found Out.

A lifelong skeptic spent six months investigating annuities -- expecting to confirm his bias. Instead, he discovered that the truth is more complicated, more interesting, and more useful than any headline suggested.

By The Wealth Gazette · Financial Affairs Desk

For twenty-seven years, Martin Ostrowski managed his own retirement portfolio with a conviction that bordered on religious faith: the stock market was the only serious vehicle for building wealth, and annuities were expensive, opaque products sold by people who earned commissions for selling them. He had read the articles. He had watched the financial television personalities. He had absorbed the conventional wisdom of the do-it-yourself investing community. When his advisor first mentioned annuities at age sixty-three, Martin's reaction was immediate and dismissive. "I have done my research," he said. "Annuities are terrible."

Six months later, Martin allocated twenty-five percent of his retirement savings to a fixed indexed annuity. This is the story of what changed his mind -- not through a sales pitch, but through a process of honest investigation that forced him to separate what he knew from what he had merely heard.

Martin's first objection was the one most skeptics lead with: fees. Variable annuities -- the product type most frequently criticized in financial media -- can indeed carry annual fees of two to three percent or more, including mortality and expense charges, administrative fees, and sub-account management fees. Martin was right about this. What he did not know was that fixed indexed annuities operate under an entirely different fee structure. Most have no annual fees whatsoever unless the owner elects an optional income rider, which typically costs between 0.75 and 1.25 percent annually. Martin had been applying the fee structure of one product category to a completely different one.

His second objection was surrender charges -- the penalties for withdrawing money early. This concern is legitimate and deserves honest treatment. Most fixed indexed annuities carry surrender periods of seven to ten years, during which early withdrawal beyond a free annual amount incurs declining penalties. This is a real limitation. It means annuity money is not fully liquid for nearly a decade. Martin was right to take this seriously. The counterpoint, which he had not considered, is that the surrender period exists because the insurance company needs time to invest the premium and generate the guarantees. It is not a hidden trap -- it is the mechanism that makes guaranteed returns possible.

The third objection -- that you lose your money when you die -- turned out to be the most outdated. Modern fixed indexed annuities include death benefits that return the full account value (or more) to beneficiaries. The old caricature of "the insurance company keeps everything" applies to certain immediate annuity structures but not to the accumulation-focused products most commonly used today. Martin had been arguing against a product that largely no longer exists in the form he imagined.

What finally moved Martin was not the resolution of his objections but the emergence of a question he had never thought to ask: what is the cost of not having guaranteed income? He ran the numbers on his own portfolio through the 2008 financial crisis. Had he been retired and withdrawing during that period, his portfolio would have sustained permanent damage -- not because the market did not recover, but because he would have been forced to sell shares at the bottom to fund his living expenses. The market recovered. A depleted portfolio cannot.

Martin now describes his position this way: annuities are not the best growth vehicle. They are not designed to be. They are an income tool -- a way to create a paycheck that arrives regardless of what the market does. Judging an annuity by its growth potential is like judging a fire extinguisher by its inability to start a fire. It misses the point entirely.

The honest summary is this: annuities have real limitations. They reduce liquidity. They cap upside potential. They require a long-term commitment. But they also solve a problem that no other financial product solves with the same certainty -- the problem of guaranteed lifetime income. Whether that trade-off makes sense depends entirely on your situation, your other assets, and your tolerance for uncertainty. Martin concluded that the trade-off was worth it. He also concluded that he had spent twenty-seven years arguing against something he had never actually understood.

Most Annuity Critics Cannot Identify the Product They Are Criticizing

Staff Report

~4 in 5adults cannot correctly define what an annuity is, let alone distinguish types

Research from LIMRA's Secure Retirement Institute consistently finds that the vast majority of adults who hold negative opinions about annuities cannot accurately describe the basic mechanics of a fixed indexed annuity — the most commonly sold annuity type in the United States.

The most frequent errors involved confusing fixed indexed annuities with variable annuities (different fee structures, different risk profiles) or believing that annuity owners forfeit their principal upon death (incorrect for most modern contracts). The study suggests that much of the negative sentiment surrounding annuities is directed at outdated or incorrect product descriptions rather than the products themselves.

Where the Bad Reputation Comes From -- and Why It Persists

Economics Desk

Annuities earned their poor reputation honestly. In the 1980s and 1990s, variable annuities with high fees, confusing structures, and aggressive sales tactics were widely sold to people who did not need them. Consumer advocates and financial journalists rightly criticized these practices, and the criticism stuck -- even as the products evolved dramatically over the following decades.

Today's fixed indexed annuities bear little resemblance to the variable annuities of that era. They carry no market risk to the owner's principal, typically have no annual fees unless an income rider is selected, and include death benefits that preserve the account value for heirs. But the reputation of the earlier generation continues to color public perception.

There is also a structural incentive at play. The do-it-yourself investing industry -- discount brokerages, robo-advisors, financial media -- earns revenue when assets remain invested in market products. Annuities move money off those platforms. This does not mean the criticism is dishonest, but it does mean the loudest voices against annuities often have a financial interest in the alternative.

The Wealth Funnies

A comic strip in four panels

Panel 1: A man at a dinner party declares, 'Annuities are the worst investment you can make.' Panel 2: His neighbor asks, 'Which type of annuity?' The man pauses. Panel 3: 'There are types?' he asks. Panel 4: The neighbor slides him a copy of The Wealth Gazette and says, 'Read this. Then we can argue properly.'

The Honest Pros and Cons: A Checklist for Clear-Eyed Evaluation

By The Wealth Gazette · Personal Finance Desk

The genuine advantages: Principal protection from market loss. Guaranteed lifetime income options. Tax-deferred growth. Death benefits that preserve value for heirs. No annual fees on most fixed indexed products. Income that cannot be outlived.

The genuine disadvantages: Reduced liquidity during surrender periods (typically seven to ten years). Capped or limited upside participation in strong bull markets. Complexity -- contract terms vary significantly between carriers and products. Income rider fees, when elected, reduce accumulation value. Guarantees are backed by the claims-paying ability of the issuing insurance company, not by the federal government.

The questions that matter: Do you need guaranteed income that market volatility cannot interrupt? Do you have other liquid assets that can cover emergencies during the surrender period? Is your primary concern running out of money, or maximizing your estate? Are you willing to trade some growth potential for income certainty?

If you answered yes to the first three questions, an annuity allocation deserves serious consideration -- regardless of what you may have read online. If you answered no, other tools may serve you better. The point is not that annuities are good or bad. The point is that they solve a specific problem, and the only relevant question is whether you have that problem.

"Why I Bought Indexed Annuities"

Written by an independent industry analyst with no incentive to sell you anything — just a straightforward look at why she chose indexed annuities, what surprised her, and what she wishes more people understood. For readers who want facts, not a sales pitch.

Request Your Free Copy Below — No Cost, No Catch

Editorial Cartoons

Editorial cartoon: A courtroom scene. An annuity sits in the witness stand. The prosecutor, labeled 'Financial Media,' holds up a document titled 'Variable Annuity Circa 1995.' The defense attorney objects: 'Your Honor, that is not even the same product.' Caption: 'The case of mistaken identity.'

Editorial cartoon: A man wearing a blindfold labeled 'I Did My Own Research' walks past a clearly marked door labeled 'Guaranteed Lifetime Income.' He is heading toward a door labeled 'Hope the Market Cooperates.' Caption: 'The confidence of the uninformed.'

Your Next Steps

A Reader's Guide to Taking Action

If you received this by email: Navigate back and click the booking link to schedule your free 60-minute education session.
If you received this by text: Reply to your advisor and share what stood out to you. They will take it from there.
Show up to your free education session. No obligations, no sales pitch — just annuity basics and answers to your questions.
Receive your complimentary copy of "Why I Bought Indexed Annuities" — our way of saying thanks for your time.

"Education first. Decisions second. Always."

Classifieds

WANTED: Financial opinion held for more than two decades that can survive fifteen minutes of actual research. Must be specific enough to identify which product type it criticizes. Vague objections need not apply. Compensation: intellectual honesty.

Public Notices

NOTICE: The Gazette neither endorses nor discourages the purchase of any financial product. We do, however, strongly discourage forming opinions about products you have not taken the time to understand. This applies to annuities, equities, bonds, and any other instrument that affects your retirement.

Financial Forecast

OUTLOOK: The Gazette observes that certainty remains more expensive than hope but considerably cheaper than regret. Markets will continue to do what they have always done: reward patience in the long run and punish overconfidence in the short run.