What are the most common annuity mistakes to avoid?


Editorial team Published on

The most common annuity mistake is failing to understand high fees, long surrender periods, and liquidity limits before signing a complex contract.

Annuities can provide secure lifetime income, but unforced errors can quietly erode your retirement savings.

💡 Ignoring High Fees and Commissions

  • The Trap: Variable or complex indexed products often feature steep administrative costs, rider fees, and agent commissions that can surpass 2% annually.
  • How to Avoid: Request a complete fee breakdown in writing and compare products from multiple carriers.

⚠️ Overlooking Surrender Charges

  • The Trap: Withdrawing more than the penalty-free allowance (usually 10% annually) during the surrender period triggers steep penalties starting at 7% to 10%.
  • How to Avoid: Match your contract term to your timeline so you never need early access to locked funds.

🛑 Choosing the Wrong Annuity Type

  • The Trap: Buying a growth-oriented variable or indexed annuity when your actual primary goal is stable, guaranteed lifetime income.
  • How to Avoid: Clarify your exact goals—whether you need immediate payouts, conservative growth, or principal protection—before shopping.

📉 Forgetting Inflation Protection

  • The Trap: Selecting a fixed payout that loses purchasing power over decades of rising consumer prices.
  • How to Avoid: Look for cost-of-living adjustments or riders that scale your income over time.

🗒 Omitting or Failing to Update Beneficiaries

  • The Trap: Leaving beneficiary fields blank forces the asset into probate, creating costly legal delays for your heirs.
  • How to Avoid: Designate primary and contingent beneficiaries clearly, and review them after major life events.