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The Three Myths of Annuities

March 3, 2020

In today’s customizable, satisfaction-guaranteed world, it’s no surprise that investors, too, want it all. They expect retirement solutions that provide guaranteed income, while still insulating them from downside risk.

There is a solution that offers both: annuities. But even though annuities are one of the only vehicles that deliver income and risk mitigation, surprisingly only 42% of financial advisors recommend them as part of retirement and income plans. Misconceptions or outdated views on annuities may be keeping advisors from offering the financial stability their clients need. Dispelling the most common annuity myths is the first step in remedying this.

MYTH 1: Consumers hate annuities

Truth: Although some clients may not fully know the benefits of annuities, or hold outdated, incorrect opinions, a growing number are becoming educated and are choosing to add fixed indexed annuities (FIAs) to their retirement plans. In fact, recent annuity sales are shattering previous records. According to the LIMRA Secure Retirement Institute, FIA sales were $20 billion in the second quarter of 2019, 14 percent higher than prior year results.1 Indexed annuity sales are expected to grow by double digits to about $96 billion by the end of 2023, a 38 percent gain over 2018.2 Those who understand the benefits FIAs can provide — income protection and stability with little or no maintenance — are not surprised.

MYTH 2: Annuities are not an accumulation vehicle

Truth: With the innovation of uncapped crediting strategies, this is no longer true. Clients can take advantage of a positive index performance without worrying about another 2008. An indexed annuity with a decent participation rate will help significantly reduce clients’ risk, but also give them the growth they need. In fact, according to a study on traditional asset allocation conducted by Roger Ibbotson and Zebra Capital Management, FIAs help control financial market risk, mitigate longevity risk, and will likely outperform bonds over time.3

MYTH 3: Annuities are unnecessary with proper asset allocation

Truth: The Ibbotson and Zebra Capital Management study also showed that “a major advantage of an FIA is the ability of the insurance provider to ‘transform’ equity returns into a more ‘tailored’ return/risk profile (eliminating downside risk and providing an opportunity for interest earnings based upon a portion of equity returns). This downside protection is very powerful and attractive to many individuals planning for retirement.”3 Additionally, with today’s low interest rate environment coupled with experts’ modest expectations for bond returns in the near-term, FIAs should be considered.

Don’t believe the myths, believe the numbers. If you haven’t yet talked to your clients about fixed indexed annuities, now is the time. Contact us today at to get started.

1 “Fixed indexed annuity sales rise 14% to $20 billion in second quarter,” Investment News, August 21, 2019.
2 “Annuity Sales On Pace For 5% Growth In 2019,” Jacqueline Sergeant, Financial Advisor, April 9, 2019.
3 “Fixed Indexed Annuities: Consider the Alternative,” Roger G. Ibbotson and Zebra Capital Management, January 2018.



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