2026-04-16 · Education · Annuity Radar

Where the Myths Come From

Annuities have a reputation problem — earned in some cases, unfair in others.

The earned part: variable annuities with high fees and aggressive sales tactics gave the entire category a black eye that hasn't fully faded. The unfair part: those criticisms get applied wholesale to products that work very differently.

Here are five myths worth correcting — with the actual math where it matters.

Myth 1: "If I Die Early, the Insurance Company Keeps My Money"

The truth: Most annuity products include death benefit provisions.

For MYGAs and FIAs, if you die during the accumulation phase, the full account value — principal plus accumulated interest — typically passes to your named beneficiary, free of surrender charges.

For SPIAs with a life-only payout, this is the one case where the critique has some validity: if you die shortly after purchase, the remaining premium value stays with the carrier. That's how the mortality credit pool works.

But almost no one buys a pure life-only SPIA without considering this. The fix is simple: a life with period certain option guarantees a minimum payment period (e.g., 20 years). If you die in year 3, your beneficiary receives payments for the remaining 17 years. The payout is slightly lower — but the concern goes away.

Bottom line: Death benefits exist and are the default in most structures. Review your specific product — don't assume.

Myth 2: "Annuities Have Outrageous Hidden Fees"

The truth: It depends entirely on the product.

MYGAs: generally no annual fees. The carrier earns its margin through the rate spread, not line-item charges.

FIAs (base product): same — no annual fee. Caps and participation rates reflect the cost of the options strategy, not a fee.

FIAs with income riders: there is an annual rider charge — typically 0.75% to 1.25% per year. That's disclosed in the contract.

Variable annuities: yes, fees can reach 3–4% annually between M&E charges, fund fees, and riders. The criticism applies here.

The math: On a $200,000 MYGA with a 5.00% rate and no fees, your five-year ending value is approximately $255,256. There's no fee to subtract. The rate you see is the rate you earn.

Bottom line: "Annuities have high fees" is true for some products and false for others. Know which category you're looking at.

Myth 3: "You Can't Access Your Money"

The truth: Surrender charges apply to early withdrawal, but most products have liquidity provisions.

Most MYGAs and FIAs allow 10% of the account value per year without surrender charge. That's not unlimited liquidity — but it's not a complete lockup either.

Additional liquidity provisions in many contracts:

The genuine tradeoff: if you need all of your money in year 2 of a 5-year MYGA, there's a penalty. That's disclosed upfront. The product is designed for money you won't fully need during the term.

Bottom line: Surrender charges exist and matter — but they apply to partial situations, not total lockups. Free withdrawal provisions provide real flexibility.

Myth 4: "Annuities Aren't Worth It Because Rates Are Low"

The current reality: This critique was valid from roughly 2010 to 2021, when MYGA rates were often 1.5–2.5% — less compelling than inflation, let alone CD alternatives.

That environment changed meaningfully in 2022–2023. MYGA rates have since been competitive — often in the 4.5–5.5% range for 5-year terms from A-rated carriers, sometimes higher.

The math: $100,000 in a 5-year MYGA at 5.20% grows to approximately $129,000. Tax-deferred. Guaranteed. With no market risk.

At 2.00%? It grows to $110,408. Not nearly as compelling.

Rate level matters a lot. Don't accept outdated assumptions — look at current rates.

Bottom line: Check current MYGA rates before assuming the criticism applies. The environment has changed substantially.

Myth 5: "Annuities Are Just for Old People"

The truth: The tax deferral benefit of annuities is actually larger over longer time horizons.

A 45-year-old with 20 years until retirement receives more compounding benefit from tax deferral than a 65-year-old with a 5-year accumulation horizon.

That said, some product types — particularly SPIAs and income riders — are most useful in or near retirement, when income is the goal.

Where age actually matters: Surrender periods. A 10-year FIA commitment is more appropriate at 55 than at 78. Liquidity needs increase with age. Match the surrender period to your realistic timeline.

Bottom line: Annuities are appropriate at a range of ages depending on the structure. Tax deferral favors longer time horizons, which often means younger buyers in some product types.

The Takeaway

Blanket statements about annuities — positive or negative — are usually wrong because the category is too broad.

Ask about the specific product: what type, what fees, what surrender schedule, what death benefit, what free withdrawal provision. The answers tell you more than any headline.

Questions about your specific situation? Contact Devin for a free, no-pressure rate comparison. Licensed in multiple states. No commitment required.