The Worst Annuities: Which Products to Avoid

Shawn Plummer

CEO, The Annuity Expert

If you’re looking for an annuity, knowing what to avoid is essential. 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.

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Avoid Insurance Companies With Poor Ratings

When it comes to annuities, there are many options out there. With so many companies and products, 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. Annuity companies avoid are those 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 less stable than 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.

Annuity Companies To Avoid

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 converting 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 cannot 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:

Worst Annuity Companies

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 must 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 increase 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, paying higher annuity fees is unnecessary in most cases 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 Ratings

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!

Annuity Companies To Avoid

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Frequently Asked Questions

Has anyone ever lost money in a fixed annuity?

Yes, individuals can lose money in a fixed annuity if the insurance company issuing the annuity becomes insolvent and cannot fulfill its payment obligations. While such cases are rare, choosing a financially stable insurer with strong credit ratings is crucial.

What is the safest annuity company?

It’s difficult to definitively declare the safest annuity company, as financial stability can change over time. However, you can evaluate the safety of an insurer by checking their financial strength ratings from agencies such as A.M. Best, Standard & Poor’s, Moody’s, and Fitch. Highly rated companies with strong credit ratings are generally considered safer.

Why annuities are bad investments?

Annuities can be considered bad investments for some due to their lower returns compared to other investment options, lack of liquidity with potential penalties for early withdrawal, and high fees in some instances. Additionally, the fixed payments from annuities might not keep up with inflation, eroding purchasing power over time. The insurer’s financial stability also plays a role, as insolvency can lead to lost funds. These factors can make annuities less suitable for certain investors.

Which annuity company is best?

It’s difficult to single out the best annuity company, as the ideal choice depends on your financial goals, risk tolerance, and specific annuity product preferences. To determine the best company for your needs, compare financial strength ratings, fees, product offerings, and customer service.

Are annuities safer than the stock market?

Annuities can be considered safer than the stock market in providing a guaranteed income stream and protecting the principal from market fluctuations. However, they typically offer lower returns compared to stocks. While the stock market can be volatile and involves higher risks, it also offers potentially higher long-term growth.

At what age should you not buy an annuity?

There is no specific age limit to avoid buying an annuity. However, annuities may be unsuitable for younger investors seeking higher returns and growth potential or those with shorter investment horizons. As you approach or enter retirement, annuities can become more attractive as a source of guaranteed income.

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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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