Why do people who need income, often times avoid annuities?

Don’t let an Urban Legend or a myth stand in the way of creating safety and guaranteed retirement income, if that’s what you want.

Do you remember the stories about Halloween candy being poisoned or tampered with 30 years ago. Razor blades in apples. Booby trapped candy. It sent panic into parents nationwide.

It completely changed Trick or Treating behavior to the point that in 1985 an ABC news poll showed that 60% of parents worried their children might be victimized.

But after two researchers studied every Halloween incident since 1958 they found zero incidents where strangers caused life threatening harm on Halloween by messing with the candy.

It was a myth.

  • One kid overdosed on his Uncle’s heroin and the family tried to cover it up
  • In another case a father poisoned his own son with cyanide to collect insurance money

So basically, you were more at risk taking candy from your own family than from a stranger.

How about the statement “The Great Wall of China is the only man-made structure visible from space.” Yeah, that’s a myth too. If the Great Wall was visible, then so is  any highway. They are the same width.

And one more. The press goes crazy every year over shark attacks. Getting people to the point where they don’t even want to go in the ocean.

But actually you are 300 more times likely to get killed by a deer, than a shark.

These are all from a book I just finished reading “Made To Stick” Why Some Ideas Survive and Others Die.

Why do some Urban Legends like these stick so well…even though they aren’t true?

So I asked myself the question the other day.

“For people who need retirement income, why do some of them avoid annuities?”

Aside from just not being suitable for them, the answer I came up with was …

There are Annuity Urban Legends.

Some of the myths about annuities are just like the made up story about Halloween candy being poisoned.

  • It’s a thought or phrase that sticks in your head
  • Often times it’s not validated to see if it’s true or not
  • The myth affects decisions people make, even though it’s not true

So here are some of the Urban Legends that surround annuities that have stuck around.

Annuity Urban Legends

  1.  If you die your family loses all the money.
  2. My money is locked up and I can’t get at it for 10 years
  3. Annuities are a bad investment and I should stay away
  4. Annuities have high fees

Lets look at these one by one.

1. If you die your family loses all the money


Back in the olden days this may have been true but not now. In most cases, your family will inherit whatever is left in your account value. You name beneficiaries on the account form, and the money passes to them automatically and avoids probate. * See Footnote 1. 

2. My money is locked up and I can’t get at it for 10 years.


Most annuities allow you to take out 10% of your account value each year without any penalties. They have moderate liquidity. If you have $100,000 and you need some money, you can take out $10,000 no problem.

3. Annuities are a bad investment and I should stay away.

Annuities solve a problem. If you need monthly income from your IRA-401 when you retire, they are really good at providing that.

If you want your principal safe and protected with the chance to earn more interest than at the bank. They are really good at that too.

So if you have either of those two problems. Annuities might be a perfect fit.

On the other hand, annuities are horrible at being 100% liquid all the time. They are horrible at being able to trade in and out. They are not stock market investments and will not give you returns of over 10% over the long term.

So are they a bad investment? It depends on the purpose of the money. Safety and Income are what annuities are good at.

4. Annuities have high fees

The annuities we offer are Fixed Annuities and Hybrid Annuities.  Generally, they do not have any fees unless you add on a rider.

Many people do add on income riders for the guaranteed income it provides. Generally the fee for the rider is under 1%.

A different type of annuity is a Wall Street product called a Variable Annuity. They  have high fees and risk. When you think of high fees think of Variable Annuities.

So the amount of fees depends on which type you use.

So in closing, annuities may or may not be a fit for you.

Just don’t let an Urban Legend or a myth stand in the way of creating safety and guaranteed retirement income, if that’s what you want.

If you have any questions, or are confused about something, feel free to reach out to me and I’ll help point you in the right direction.


* Footnote 1: (The only exception would be if you purchase an immediate annuity with LIFE ONLY payout or annuitize an existing annuity with a LIFE ONLY payout. The LIFE ONLY means the payments end when you die. Instead you can pick LIFE WITH 10 YEAR PERIOD CERTAIN or 20 YEAR PERIOD CERTAIN and then you know someone will get payments for a certain period of time even if you die. )

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