Annuities are not complicated products — but the mistakes people make when buying them can be permanent and expensive. A wrong payout option chosen at purchase cannot be undone after income begins. A rate not compared across carriers before purchase is money left on the table for the entire term. Here are the 5 most common and costly annuity mistakes retirees make — and exactly how to avoid every single one.
Mistake 1 — Buying From a Captive Agent Without Comparing the Market
A captive agent works for one insurance company and can only sell that company's products. If you buy an annuity from a captive agent you are seeing one company's rate at that company's terms — with no way of knowing whether a competing carrier is offering a meaningfully higher rate or better terms for the same product type.
Annuity rates vary significantly across carriers. A 0.75 percent rate difference on a 200,000 dollar 5-year MYGA is approximately 7,500 dollars in additional interest over the term. That is not a trivial difference — and it is entirely preventable by simply comparing.
How to avoid it — work with an independent advisor who is licensed to represent multiple carriers. An independent advisor can show you current rates from many companies simultaneously so you purchase the most competitive product available for your specific premium and term.
All advisors in the Superb Assets network are independent. Every consultation is free.
Mistake 2 — Choosing Life Only When You Have a Spouse
This is the most costly and most irreversible annuity mistake married retirees make.
A life only payout option provides the highest possible monthly payment — and stops completely the day the annuity owner dies. If the owner dies first the surviving spouse receives zero income from that annuity for the rest of their life.
Many retirees choose life only because the monthly payment is higher without fully understanding what happens to their spouse when they are gone. By the time the mistake becomes clear it is too late — the payout option chosen at the start of income is permanent and cannot be changed.
How to avoid it — ask your advisor to show you the exact monthly payment for both life only and joint and survivor options before you commit. The joint and survivor payment is lower — but it continues for both lives regardless of which spouse dies first. For most married couples this protection is worth the difference in monthly payment.
Mistake 3 — Not Reading the Surrender Charge Schedule
Every annuity has a surrender period during which withdrawing more than the penalty-free amount triggers a surrender charge. For most products this is a declining percentage applied to the excess withdrawal — starting at 7 to 10 percent in year one and declining by approximately 1 percent per year.
The mistake retirees make is not understanding this before purchase — discovering it when they need to access funds and facing an unexpected penalty.
What most retirees also do not know is that most annuities allow penalty-free withdrawals of up to 10 percent of the account value per year. And most annuities also waive surrender charges for specific qualifying events — including nursing home admission, terminal illness diagnosis, and in some cases required minimum distributions.
How to avoid it — ask for the full surrender charge schedule in writing before you purchase. Confirm the penalty-free withdrawal percentage. Ask about qualifying events that waive charges. And only put money into an annuity that you genuinely will not need as a lump sum during the surrender period.
Mistake 4 — Putting All Your Savings Into One Annuity
An annuity is not a bank account. During the surrender period accessing more than the annual penalty-free amount triggers charges. For a retiree who has placed all or most of their liquid savings into a single annuity an unexpected major expense — a medical bill, a home repair, a family emergency — can create a situation where the only funds available are inside an annuity with active surrender charges.
This is one of the most practical and avoidable annuity mistakes — and it is entirely a matter of allocation planning before purchase.
How to avoid it — a widely used guideline is to keep at least 6 to 12 months of living expenses in a fully liquid account outside any annuity before committing funds to an annuity contract. Most financial planning professionals also recommend keeping 30 to 60 percent of retirement savings in annuities and maintaining meaningful liquidity in other accounts.
A licensed independent advisor can help you determine the right allocation for your specific situation before any purchase decision is made.
Mistake 5 — Buying Under Pressure or Too Quickly
An annuity is a long-term commitment — typically 5 to 10 years with a surrender period. It is not a decision that should be made under time pressure, at the end of a dinner seminar where a limited-time rate is advertised, or without seeing illustrations for multiple products from multiple carriers.
Annuity rates do change — but they do not evaporate overnight. An advisor who creates urgency around an immediate purchase decision without giving you time to review the full product illustration, understand the surrender terms, and compare alternatives is not working in your best interest.
How to avoid it — use the free look period. Every annuity sold in the United States must include a free look period — typically 10 to 30 days depending on the state — during which you can review the full contract and return it for a complete refund if anything does not match what you were told.
Take the time you need. Ask for the full contract illustration before signing anything. See the surrender charge schedule in writing. And if any advisor pressures you to decide before you are ready — that is a red flag not a buying signal.
The Common Thread Behind All 5 Mistakes
Every one of these five mistakes is significantly less likely when you work with a licensed independent advisor who is not incentivized to sell you one specific product from one specific carrier on a specific timeline.
An independent advisor can compare multiple carriers, show you every payout option with real dollar illustrations, walk you through the full surrender schedule, help you determine the right allocation, and give you time to make a decision you are fully confident in.
Every advisor in the Superb Assets network is independent, every consultation is free, and there is never any pressure to purchase anything.
Final Thoughts
Annuity mistakes are not made because retirees are not careful — they are made because most retirees do not know what to ask before they sit down with an advisor. Now you do. Use these five mistakes as a checklist for any annuity conversation you have — and if you want a licensed independent advisor who has seen all five of these mistakes play out and knows exactly how to help you avoid them, Superb Assets connects you with one near you for free.
FAQ
What are the most common annuity mistakes?
Buying from a captive agent, choosing life only payout for a married couple, not reading the surrender schedule, putting all savings into one annuity, and buying under time pressure.
What happens if you buy the wrong annuity?
Permanently lower income from wrong payout option, surrender charges on needed funds, lower rates than competitors offered, and potential loss of spouse income protection.
How do I avoid annuity mistakes?
Work with a licensed independent advisor who compares multiple carriers, shows every payout option with illustrations, reviews the full surrender schedule, and gives you time to decide without pressure.
Is it a mistake to put all savings in one annuity?
Yes for most retirees. Keeping 6 to 12 months of expenses liquid outside any annuity and maintaining 30 to 60 percent in accessible accounts provides needed flexibility.
Can you get out of an annuity if you made a mistake?
Within the free look period — typically 10 to 30 days — yes, full refund. After that surrender charges apply. Payout options on income annuities cannot be changed after income begins.
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