4 Annuity Mistakes Seniors Should Avoid
Considering an annuity as part of your retirement income plan? You’re not alone—annuities can offer steady income and peace of mind for retirees. But as retirement professionals, including me, point out in a recent MSN feature, some common pitfalls can turn an annuity from a safety net into a costly mistake. Here’s how you (or your loved ones) can steer clear of trouble and make the most of annuities in your wealth management strategy.
Mistake #1: Buying the wrong type of annuity for your goals.
All annuities are not created equal. Fixed, variable, and indexed annuities each have different rules, risks, and payout structures. Before locking money away, make sure your choice matches your unique retirement income needs—and personal risk tolerance. A certified financial planner or fiduciary financial advisor can help you determine whether a specific contract fits your overall plan.
Mistake #2: Overlooking the fine print on fees and surrender charges.
Annuities can come with a host of hidden costs: commissions, administrative fees, and large penalties for early withdrawal (known as surrender charges). Not reading the details can reduce your returns or lock up your money longer than anticipated. Always request a clear breakdown, and don’t be pressured by high-commission sales tactics.
Mistake #3: Putting more money into annuities than you can comfortably afford to tie up.
It’s easy to get sold on the promise of “lifetime income”—but tying up too much of your savings in an annuity means you may lose flexibility for emergencies, rising expenses, or changing plans. As I often advise my own wealth management clients, a diversified retirement strategy—one that includes liquidity for the unexpected—is almost always stronger.
Mistake #4: Failing to weigh taxes and beneficiaries.
Not all annuity payouts are taxed equally, and failing to plan could mean an unexpected tax bill for you or your heirs. Double-check how your annuity income will be taxed (especially in comparison to IRAs or other retirement accounts), and review beneficiary options so your legacy is protected.
Bottom line: Annuities can offer crucial support for some retirees, but they aren’t “set it and forget it” products. The best retirement planning puts your goals first, weighs the pros and cons, and keeps your options flexible. Before you buy, talk with an independent financial advisor or certified financial planner who can help you compare, strategize, and avoid costly missteps.
Want an expert, unbiased take on how annuities could fit with your retirement plan? Reach out for a no-obligation conversation—I’m here to help you build income and security, without surprises down the road.