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Annuity Misconceptions

DPL Financial Partners
January 16. 2024

Annuities deliver guaranteed retirement income, but misconceptions hold some people back.1


Many people who are heading into retirement have questions about how to turn their retirement savings into the income they’ll need for retirement. While there are a variety of retirement income strategies, only a handful provide guaranteed income for life:  

  • Social Security provides a steady stream of income to many retirees but may be insufficient to fund retirement spending, and its long-term viability is in question.  
  • Employer pension plans, where the employer pays a monthly benefit to retired employees, also provide steady retirement income, but just 11% of private sector workers are fortunate enough to participate in these plans.2
  • Annuities are products offered by insurance companies that are built specifically to provide guaranteed lifetime income.1 They can also offer tax-advantaged growth, mitigate market risk, and improve peace of mind.3


Common misconceptions about annuities 

While the benefits of annuities are recognized by economists and retirement researchers, a relatively small number of Americans own annuities.4 This is due in part because misunderstandings about the products obscure the value of annuities for many people who need the benefits they provide.  

Here are four common annuity misconceptions: 

  • Annuities are too expensive.  There are many types of annuities, each built to deliver benefits that come with associated costs. Understanding the product’s costs and benefits is important to determine whether a specific annuity is right for you. This is true for any financial product purchase you would consider.

    It is also important to understand that you have many choices when it comes to annuities and not all annuities are priced and sold in the same manner.  Conventional annuities are sold by financial representatives who are paid a commission for the sale of the product. Commissions drive up product costs. And these higher costs don’t go away once the commission has been recouped by the insurance company; you will pay elevated product costs for as long as you own the annuity.  

    Today, annuities are available that are “commission-free”.  These modern annuities tend to have lower costs (there is no commission to recoup) and offer more attractive benefits than commissioned annuities. Commission-free annuities often are available through “fee-only” financial advisors who are compensated for providing “fiduciary” financial advice and, importantly, not for selling a specific investment product.  


  • Annuities don’t provide enough income for the cost. A recent study found this to be untrue. The Center for Retirement Research at Boston College asked 55- to 95-year-olds how much income they would need each year to make annuitizing $100,000 worth it. About half of the participants asked for less annual income than annuities that were sold to customers of similar age and gender provided at the time of the survey. The paper’s authors reported, “…lots of people seem to want annuities but are stymied by logistical impediments to actually acquiring them.”5  


  • My savings and investments will generate the income I need in retirement. Generating a reliable stream of income from an investment portfolio is complicated. There are a lot of variables that can influence the performance of investments, including market risk, interest rate risk, inflation, longevity, and sequence of return risk, as well as taxes.

    A 2023 survey of financial advisors found that 90% were concerned about their clients outliving their savings and investments.6 Retirees who include a commission-free annuity part of their retirement income plan can realize significant benefits such as a predictable income stream for life, reduced exposure to stock market risk, and peace of mind.  


  • Annuities are only for retirees. Anyone can purchase an annuity and different annuity types offer different benefits depending on your needs.  In the years leading up to retirement, annuities can offer a tax-advantaged way to grow your savings to fund income when you retire. In retirement, an annuity can provide a steady stream of guaranteed income that will last as long as you live.

    If your employer doesn’t offer a workplace retirement plan, or you are contributing the maximum to a workplace plan and would like to save more, you may consider purchasing a commission-free annuity as a ‘personal pension’ to grow your assets today and provide a paycheck in retirement when you’re ready to turn your savings into income.  


Annuities can deliver powerful benefits before and during your retirement. If you have questions about whether an annuity is right for you, contact your financial advisor or reach out to a DPL Consultant at 1-877-625-5544.  We can help. 



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

2 How many American workers participate in workplace retirement plans? Pension Rights Center. October 23, 2023. Cited January 2, 2024.

3 Alicia H. Munnell. The Appeal of Annuities: People Are Willing to Pay for Products with Lifetime Benefits, Study Shows. Center for Retirement Research at Boston College. December 5, 2023. Cited January 2, 2024

4 Karolos Arapakis and Gal Wettstein. Do Financial Professionals Recommend Annuities? Center for Retirement Research at Boston College. December 19, 2023. Cited January 2, 2024.

5 ibid.

6 ibid.