TL;DR: Annuities can provide retirement stability, but they’re complex and often misunderstood. Whether they’re good or bad depends on your goals, contract terms, and financial needs.
Main points:
- Offer guaranteed income and stability, especially for retirees and HNWIs.
- Contracts are complex, with potential hidden fees and costly riders.
- Liquidity restrictions may limit access to cash when needed.
- Bad actors sometimes push unsuitable products using aggressive tactics.
- Best suited for those seeking security, not rapid wealth growth.
Annuities can play a significant role in retirement planning, offering a reliable income stream for you post-retirement. However, with their current popularity and complexity, many quickly declare, “I hate annuities.”
The debate over whether annuities are good or bad depends on personal finances, retirement goals, and contract terms. By examining annuities closely, we uncover their benefits, drawbacks, and why some people hesitate to use them.
Why Do Financial Advisors Hate Annuities?
The negative perception of annuities stems from drawbacks associated with these financial products and personal experiences or anecdotal evidence. Financial advisors may hate annuities because of the complex contracts.
Complex annuity contracts make it hard to know if you are making the right financial choice. Annuities are also highly competitive, with many options on the market, and some are rife with parasitic fees.
Unfortunately, there are instances where bad actors or insurance agents employ aggressive or deceptive sales strategies. This can result in individuals purchasing annuities that don't align with their needs or need to comprehend. Some bad actors even use scare tactics to push unsuitable products.
This is why critics say beware of annuities—not because all are bad, but because choosing the wrong contract can cause long-term problems.
Why Are People Against Annuities?
People duped into purchasing unsuitable contracts won’t hesitate to say they hate annuities. Remember, companies build every product differently. Some companies may offer annuities with hidden fees and unnecessary riders disguised as “benefits,” preying on unsuspecting customers. Beware of annuities when people pitch them as too good to be true.
In this mix, we can spot good companies with bad products and bad companies with bad products. Consumers must do their due diligence and carefully evaluate the terms and conditions of any annuity before deciding.
At Asset Preservation Wealth and Tax, we only work with A-rated products. Why? Because we want you to have something that genuinely works for you.
There's no one-size-fits-all perfect investment. What works for someone else might not necessarily work for you, so we tailor our offerings to ensure they suit you.
Are Annuities Good or Bad?
So, are annuities bad investments? Annuities are good and bad, depending on your financial circumstances. If your annuity makes it difficult for you to access your money when you need it, that's a red flag. An annuity should work for you, not against you.
Fixed annuities are usually safe. But they shouldn’t limit your financial flexibility or basic needs like writing a check. Choosing an annuity that aligns with your lifestyle and financial goals is important.
Why are annuities bad for some people? It largely depends on the terms of your annuity contract and your type of annuity. Variable annuities with costly riders could eat into your returns, shifting the focus from growth to income. Instead of just taking your own money, wouldn't it be more rewarding to make more money through wealth accumulation?
Choosing an annuity that grows your money instead of just spreading it out over time is the smarter choice. Remember, income is what you take, but interest is what you ultimately make.
Why Do Annuities Have a Bad Reputation?
Since there are both good and bad of annuities, why do they have such a poor reputation even though they remain popular? Again, this goes back to the terms of your contract and who really benefits from a bad annuity contract.
Some agents focus more on closing deals and earning commissions than on ensuring their clients get suitable products. They may sell annuities with high commissions, adding unnecessary features to make them seem appealing.
However, these bells and whistles can limit clients' cash flow and liquidity, leaving them with unsuitable financial products. That’s why annuities are “bad.” Clients should be aware of these tactics and work with trustworthy professionals who have their best interests at heart.
I Hate Annuities—Not!
While it might seem like everyone hates annuities, they are actually quite popular. The Investment Company Institute reports that annuity reserves outside of retirement accounts reached about 2.4 trillion U.S. dollars in the first quarter of 2025.
Following the bond market crash in 2022, high-net-worth individuals turned to annuities as a bond alternative. Annuities are favorable in this context because they offer secure and stable long-term money.
Annuities for high net worth people often make sense because they don’t face the same liquidity restraints as those with lower incomes. The current high-interest rate environment makes it favorable for HNWIs, who see more growth. This means investing in an annuity now is better than before—you can lock in high interest rates with your contract.
How Can I Incorporate an Annuity in a Risk-Aware Financial Plan?
Generally, we want to buy low and sell high, but that doesn’t always happen; this can be out of fear or necessity. Sometimes, you need to sell low because you need access to liquid cash. When we work with clients, we assess their risk tolerance and needs. You should have the peace of mind that you won’t be strapped for cash.
If you want a stable source of funds in your retirement, we can choose an annuity that works for you and accumulates growth. For example, let’s say you are a moderate investor. Annuities offer a unique opportunity to balance risk and reward.
With a fixed-rate safety net, annuities let you take bigger risks in the market. This approach offers a moderate risk profile while potentially reaping the benefits of higher returns.
The Good and Bad of Annuities
Still unsure if annuities are bad investments for you? Here’s a quick breakdown of the good and bad.
The Good:
- Provide guaranteed income for retirement, reducing uncertainty.
- Fixed annuities are usually safe and offer stability.
- Tax-deferred growth helps maximize long-term savings.
- Useful for annuities for high net worth people who don’t need liquidity.
- Can serve as a bond alternative in volatile markets.
The Bad:
- High fees and hidden costs are key reasons why annuities are bad investments for some.
- Complex contracts make them hard to understand.
- Liquidity restrictions can limit access to your money.
- Unsuitable products sold by aggressive agents highlight why you should beware of annuities.
- Variable annuities with costly riders may reduce returns instead of growing wealth.
Should I Get an Annuity?
When deciding if an annuity is right for you, ask who sells it and how they receive compensation. If it’s an agent from a questionable firm, you might say, “I hate annuities” later. You want to work with a fiduciary legally obligated to act in your best interest.
Are you truly getting the value you deserve from your financial advisor? Make sure they’re in it for the long haul and ready to deliver the services you expect.
Don't settle for a one-size-fits-all approach or spread yourself thin across multiple advisors. Look for an advisor dedicated to standing the test of time and building a lasting relationship with you. After all, strong relationships are key in financial planning, and we prioritize that at Asset Preservation Wealth & Tax.
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Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company; not guaranteed by any bank or the FDIC.
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD # 175083.
