The Worst Annuities: Which Products to Avoid

Shawn Plummer

CEO, The Annuity Expert

If you’re looking for an annuity, it’s essential to know what to avoid. Many types of annuities are available, and not all are created equal. Some are much better than others. This guide will discuss the worst types of annuities and why you should avoid them. We’ll also provide tips on finding the best annuity for your needs.

Avoid Insurance Companies With Poor Ratings

When it comes to annuities, there are a lot of options out there. With so many companies and products to choose from, it can be challenging to know where to start. That’s why we always recommend doing your research before making any decisions.

One crucial factor to consider is the financial rating of the company. A.M. Best is a leading provider of financial ratings, and they use a letter-based system to rate companies on their financial strength. Companies with a rating of B++ or below are ones that we recommend avoiding. This is because they need to improve their overall financial strength.

While there may be some exceptions, these companies are generally not as stable as those with better ratings. So when it comes to your hard-earned money, you want to ensure you’re working with a company you can trust.

That’s why we always recommend doing your research and only working with companies that have solid financial ratings. Check out our recommended list of the best annuities and best annuity companies.

Annuities That Require You To Give Up Control

Annuities are a type of investment that can provide a steady income in retirement. However, there are several types of annuities, and not all are right for everyone. One type of annuity you should avoid is a single-premium immediate annuity (SPIA).

With an immediate annuity, you annuitize your savings, which means that you convert your savings into a stream of payments that cannot be reversed. This can be problematic if you encounter financial difficulties later in life, as you will not be able to access your savings.

In addition, immediate annuities typically earn low-interest rates, and they may not provide a death benefit to your beneficiaries. As a result, avoiding products requiring you to annuitize your savings into irrevocable payments is typically best.

Instead, utilize a deferred annuity with a lifetime income rider. Similar results are achieved with more flexibility, the ability to earn interest, and beneficiaries receiving the balance in a lump sum.

Annuities that require annuitization include:

Annuities That Can Lose Money

We recommend avoiding annuities that can lose your money to stock market volatility. The primary benefit of an annuity is to generate an income for life. So why expose your safe investments to market loss?

Variable and RILA annuities are annuities that can lose money. They are called “variable” because the value of the investment goes up and down with the stock market.

Many people think they need to take more risks with their investments as they age. But retirees should be de-risking their portfolios, not taking on more risk.

With a variable annuity, you are gambling that the stock market will go up over time to have a higher payout when you retire.

However, if the stock market goes down, your monthly payout will be less than it would have been with a fixed annuity. Given the current economy, we believe it is too risky to gamble on the stock market with your retirement income.

On the other hand, fixed and fixed indexed annuities are not subject to stock market volatility. Even if interest rates go down, your monthly payment will not change. A fixed deferred annuity is the best option for retirees looking for a guaranteed income stream.

Examples of annuities that can lose money include:

Annuities With High Fees

Most deferred annuities offer similar benefits, so why pay high fees when you can accomplish similar results at a fraction of the cost?

For example, if a person wants a guaranteed income for life, they shouldn’t have to pay 3-4% in annual fees when they can achieve the same income, results only paying 1% annual fees.

The only scenario where paying more fees is suitable is if there is a specific purpose. 

For example, if a person wants to pay for more upside potential to grow their retirement savings but still protect themselves from stock market losses, the higher fees are justifiable. Instead of risking losing money with a variable annuity, purchase a fixed index annuity that allows you to pay an additional fee for higher upside potential.

However, in most cases, paying higher annuity fees is unnecessary and can eat into your retirement savings unnecessarily. Therefore, it makes sense to shop around and compare different annuities before making a final decision – after all, your hard-earned retirement savings deserve to last as long as possible!

Annuities From Captive Financial Institutions

Many people don’t realize that different financial institutions offer different products. Captive financial institutions sell only their products; in most cases, they are not the best on the market.

As a result, consumers who purchase annuities from captive financial institutions will likely get a bad deal. Working with an independent financial professional with access to a wide range of products is essential. This way, you can be sure you’re getting the best possible product for your needs.

Retirees deserve to get the best possible deals on their annuities, and working with an independent financial professional is the best way to do that.

Captive financial institution examples Include:

  • New York Life Annuities
  • Great American Annuities
  • TIAA-CREF Annuities
  • Ameriprise Annuities
  • Thrivent Annuities
  • North Western Mutual Annuities
  • Knights of Columbus Annuities
  • Farmers Annuities
  • USAA Annuities
  • Country Financial Annuities
  • RiverSource Annuities
  • Fidelity Annuities
  • John Hancock Annuities
  • Jackson Annuities
  • Transamerica Annuities
  • Equitable Annuities
  • Vanguard Annuities

Next Steps

Now that you know the ins and outs of annuities, it’s time to start shopping for the best product for your needs. Compare different products and features before making a final decision. And remember, always work with an independent financial professional to get the best possible advice for your unique situation. Contact us today for a quote on the perfect annuity product for you!

The Worst Annuities: Which Products To Avoid

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

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