5 Annuity Myths That Cost New Jersey Retirees Real Money

Annuities have a reputation problem. Some of it is earned — there are genuinely bad annuity products sold by people who prioritize their commission over your interests. But much of the negative perception comes from myths that have been repeated so many times people take them as fact.

Here are five of the most common ones.

Myth 1: "Annuities Are Full of Hidden Fees"

This is true for variable annuities — which are a very different product than fixed or indexed annuities. Variable annuities can carry 2-3% in annual fees. They expose your principal to market losses. They are legitimately complex and often oversold.

Fixed annuities — MYGAs and FIAs — typically have no annual fees on the base product. None. The carrier's profit is embedded in the rate spread or cap rate, not in a fee that appears on a statement.

If someone tells you "annuities have high fees" without specifying which type, they are either talking about variable annuities or they have not done their homework.

Myth 2: "If I Die Early, the Insurance Company Keeps My Money"

This is a concern about life-only income annuities — one specific payout option on one specific type of product. And even then, it is avoidable.

Most fixed annuities — including MYGAs and FIAs — have death benefits. If you die during the accumulation phase, your full account value passes to your beneficiaries. No surrender charges, no clawback.

Income annuities have options specifically designed to protect against early death: period certain guarantees, cash refund options, and joint-and-survivor structures. You choose the one that fits your situation.

Myth 3: "You Can't Access Your Money"

Fixed annuities typically allow 10% free withdrawals per year — no penalty, no questions asked. On a $200,000 annuity, that is $20,000 per year of penalty-free access.

Withdrawals above 10% during the surrender period do incur a penalty. That is a real constraint that matters if you may need the full amount. But characterizing annuities as completely illiquid is simply wrong for the vast majority of contract holders.

Myth 4: "Annuities Are Only for Old People"

Fixed annuities are useful at any age where tax-deferred accumulation is valuable. A 45-year-old with $150,000 in a savings account earning 4.5% who moves it into a MYGA earning 5.75% — with deferred taxes — is ahead in every meaningful way.

Income annuities and income riders are most relevant for people approaching or in retirement, but that is because the products are designed around retirement income timing. The accumulation products — MYGAs and basic FIAs — are relevant to any saver with a 3-10 year horizon.

Myth 5: "You Can Get the Same Thing From a CD or Bond"

You get some of the same things — a fixed return, no market risk. You do not get tax deferral (on a CD). You do not get the potential for index-linked growth in good years (on a bond). You do not get a 2-3x multiplier for long term care coverage. You do not get a contractual guarantee of lifetime income.

A MYGA and a CD are similar instruments with meaningful differences in favor of the MYGA for most savers. A FIA and a bond are not really comparable at all.

The bottom line: do not let generalized criticism of "annuities" — much of which applies specifically to variable annuities — keep you from evaluating whether a fixed or indexed annuity makes sense for your situation.

The right tool is the one that fits your goals. If you want an honest comparison of what an annuity would and would not do for your specific situation, reach out. We will tell you if it makes sense — and if it does not, we will tell you that too.