Understanding Annuities: Are They Too Good to Be True?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

What are Annuities?

Annuities are financial products that provide a steady income stream, typically for retirement. They are contracts between an individual and an insurance company. The individual pays a lump sum or series of payments, and in return, the company promises to make periodic payments to the individual at a later date.

Pros of Annuities

  1. Guaranteed Income: They offer a guaranteed income stream, which can be appealing for retirement planning.
  2. Tax Deferral: Earnings from annuities grow tax-deferred until withdrawal.
  3. Customization: Options like death benefits and riders can be added for additional security.

Cons of Annuities

  1. Fees: Annuities often come with administrative fees, mortality and expense risk charges, and investment management fees.
  2. Surrender Charges: Withdrawing funds early can result in hefty surrender charges.
  3. Complexity: They can be complex and difficult to understand, requiring careful consideration and sometimes professional advice.

Types of Annuities

  1. Immediate Annuities: Start paying out income almost immediately after a lump sum is paid.
  2. Deferred Annuities: Accumulate money over a period before starting to pay out.

Are Annuities Too Good to Be True?

  • Balanced View: Annuities are not inherently too good to be true. They offer definite benefits, particularly for retirement income. However, they come with long-term commitments, potential fees, and surrender charges.
  • Not One-Size-Fits-All: Their suitability varies based on individual financial situations and retirement goals.

Annuities at a Glance

Income StreamGuaranteedPotentially lower than market returns
Tax BenefitsTax-deferred growthTaxed as ordinary income at withdrawal
FlexibilityVarious types and optionsCan be complex and inflexible
FeesOften have high fees
CommitmentLong-term securityLong-term lock-in, surrender charges


Annuities can be a valuable tool for retirement planning, offering guaranteed income and tax benefits. However, they require careful consideration due to their complexity, fees, and long-term nature. Understanding both the advantages and drawbacks is crucial to making an informed decision. Contact us today for a free quote.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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