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Annuity Misconceptions

DPL Financial Partners
November 17. 2023

Misconception #1: “I won’t run out of money — I don’t want or need guaranteed income.”

The Alliance for Lifetime Income reports 51% of consumers feel they do not have enough retirement savings to last their lifetime, and 32% are not confident they will have enough to cover basic monthly expenses.1 Retirees biggest fear is outliving their assets — and their concern is understandable.2

Annuities are perhaps the only way to mitigate longevity risk, but they are also a more efficient means of generating retirement income. Annuities can quickly outperform fixed income in generating retirement income and provide payouts long after fixed income portfolios would be depleted. Annuities should be considered, especially if you are likely to outlive the average life expectancy.

Stat showing consumer desire for guaranteed income

Misconception #2: “I don’t want or need annuities.”

The annuity market is a $4T market — showing a clear desire for guaranteed income among consumers and retirees.4 The Alliance for Lifetime Income reports 85% of investors are interested in owning an annuity that guarantees lifetime income, or already own one.1 

The psychological benefits of annuities are well documented, including peace of mind and increased happiness in retirement.5 Not only can they provide that peace of mind, annuities can also provide a budget if you tend to overspend, or a freedom to enjoy retirement if you may be afraid spending will cause you to run out of money in later years.

Graph showing annuity risk spectrum

Misconception #3: “My fixed income portfolio can outperform an annuity.”

An annuity is built on the insurance carrier’s balance sheet, which resembles a large, scaled bond ladder. So, insurance products will often perform like fixed income investments, but where they shine relative to traditional fixed income portfolios is in the income they can generate. We encourage you to run the numbers to see how an annuity is able to provide secure retirement income relative to a fixed income strategy.

Table showing annuities vs. investments for income, stat for consumers

Misconception #4: “Income is generated through annuitization.”

Annuitization is the process of converting an annuity investment into a series of periodic income payments. Annuitization is an irreversible allocation of funds — and you may lose cash value and a death benefit when if you annuitize.

LIMRA reports only about 5% of all annuities sold in the United States are annuitized.6 Single premium immediate annuities (SPIAs) generate income through annuitization. For every other annuity — while you can annuitize — it is more common for income to be generated through riders. This is important because you are not turning over assets to the insurance company to generate income. When income is generated using a rider, cash value remains available until it is depleted through distributions.

Annuities are a powerful tool to generate income in a retirement plan — income now, income soon, or income later. Without annuitization, annuities can provide reliable income to a retirement portfolio based on your liquidity, flexibility, and payout rate preferences.

Graph showing how annuities can adapt to income needs

Misconception #5: “All annuities have surrender periods.”

Commission-Free annuities more often than not do not have a surrender period. If they do have a surrender, it’s more analogous to an early withdrawal or early redemption penalty rather than a charge to recoup a commission. Where surrender periods exist, they enable the insurance carrier to better manage duration risks to the portfolio and thus pay you a higher interest rate. For Commission-Free products with surrender periods, the surrender periods are typically shorter, and products have lower fees than their commissioned counterparts.

Features of surrender periods

Misconception #6: “I haven’t looked at annuities because bond yields are low.”

Bond yields being low actually makes annuities more appealing compared to fixed income. When bond yields are low, the shortfall in retirement income needs to be met through the sale of equities, harming portfolio returns and subjecting you to sequence of returns risk. The article “Bonds or Annuities? What’s the Best Way to Generate Retirement Income?” provides analysis by academics Wade Pfau, David Blanchett and Michael Finke. See how annuities stack up against current rates:

Graph copmaring MYGA, CD, & Treasury Yields


To learn more about our Commission-Free annuities, call 877.625.5544 to speak with a DPL Consultant.


1 ALI 2023 PRIP Survey
2 Cerulli
3 Insured Retirement Institute
4 Insurance Information Institute
Michael Finke, Standard Deviations Podcast
7 MYGA rates available through DPL compared to median US Treasury Yield and comparable CDs via Fidelity, November 17, 2023.

Fixed Index annuities are contracts purchased from a life insurance company that are designed for long-term retirement goals.

While the interest rate credited to an Index account is linked to the performance of an underlying index, premium payments made to a fixed index annuity are never directly invested in the  stock market.

All guarantees are based on the financial strength and claims-paying ability of the issuing insurance company.

The purchase of an annuity within a retirement plan that already provides tax deferral under sections of the Internal Revenue Code results in no additional tax benefits. An annuity should be used to fund a qualified plan based upon the annuity’s features other than tax deferral. All annuity features, risks, limitations, and costs should be considered prior to recommending the purchase of an annuity within a tax-qualified retirement plan.

DPL Financial Partners does business in the state of California as DPL Insurance Solutions under California License #0M42434.