📘 Annuities: What You Need to Know Before You Buy

What Is an Annuity?

At its simplest, an annuity is a contract with an insurance company. You give them money, and they give you either:

• Protection (you won’t lose principal in a market crash),

• Income (a paycheck you can’t outlive),

• or both.

You don’t own stocks inside an annuity. You own a promise backed by the insurer.

The Reality Behind Illustrations

Every glossy annuity brochure shows an “illustration” — a smooth, upward-sloping chart. It looks safe, predictable, and comforting. But here’s the truth:

• Illustrations assume future market performance that might not happen.

• They rarely highlight surrender charges, caps, spreads, or daily fees.

• Real returns are often far lower than the “hypothetical growth” shown.

👉 Fiduciary lens: treat illustrations as marketing, not a financial plan.

Types of Annuities (Quick Overview)

1. Fixed Annuities – Set interest rate, like a CD alternative.

2. Variable Annuities – Mutual fund–like subaccounts, higher risk and fees.

3. Fixed Indexed Annuities (FIAs) – Market-linked growth potential, but with caps, participation rates, or engineered indexes that reduce returns.

Pros and Cons of Annuities

Pros

• Principal protection.

• Optional lifetime income.

• Tax-deferred growth.

• Peace of mind in downturns.

Cons

• Long lock-in (surrender charges).

• Engineered indexes that underperform raw S&P 500/Nasdaq.

• Ongoing charges reduce growth.

• Opportunity cost compared to ETFs/index funds.

📊 Case Study: Athene Performance Elite 15

We reviewed actual allocations in Athene’s Performance Elite 15 annuity. On paper, it offered access to indexes tied to the S&P 500, Nasdaq, and custom strategies (AiPEX, BNP MAD 5). In practice, here’s what happened:

• Investor allocations: Heavy into AiPEX and BNP MAD 5 engineered indexes.

• 1-Year Results:

  • S&P 500 raw: +14%

  • S&P 500 FC (engineered version inside annuity): +0.5%

  • Nasdaq FC: -3%

• Why?

  • Volatility controls – These indexes pull back risk by shifting into cash/bonds. That protects the insurer but kills growth in bull markets.

  • Daily decrement fees – A built-in “expense drag” that reduces long-term performance.

  • Strategy charges – Some options take 1.25% annually, even if you earn nothing.

Fiduciary takeaway: Many investors think they’re getting the real S&P 500 or Nasdaq. In reality, they’re getting engineered cousins that rarely keep up. If you overlook the underlying index mechanics, your long-term growth could be far below expectations.

How Annuities Fit Life Stages

20s & 30s – Too Early

• You need liquidity and growth.

• Locking money in a 15-year contract stunts compounding.
  ✅ Better move: Roth IRA + index funds.

40s – Maybe for Balance

• Market swings feel real, but you still need growth.

• Annuities can act as a stabilizer, but not your main portfolio.
  ✅ Better move: Treat them like a bond substitute, not a stock replacement.

50s – Not Always the Right Time

• Many assume annuities make sense in your 50s, but that’s not always true.

• Remember Warren Buffett: most of his wealth explosion came after 50. You may still need growth, not just safety.
  ✅ Better move: Review carefully. If you’re still building, equities may serve you better. If you’re truly shifting to preservation, an annuity might be appropriate for a portion.

60s & Retirement – Security vs. Growth Trade-Off

• At this stage, you care more about steady income and protecting what you’ve built.

• Annuities can create a floor of safety — but locking too much away can limit flexibility and legacy planning.
  ✅ Better move: Use annuities only for essential income needs, and keep market assets for continued growth.

Retirement – Security First

• You may want predictable income.

• Annuities can create a personal pension alongside Social Security.
  ✅ Better move: Use annuities to cover baseline expenses, keep market assets for growth.

✅ Fiduciary Advice

An annuity isn’t “good” or “bad.” It’s a tool. But like any tool, it must fit the job:

• If your goal is safety and income, an annuity may help.

• If your goal is market growth and flexibility, annuities won’t deliver.

• If you choose an annuity, always dig into the underlying indexes. The label may say “S&P” or “Nasdaq,” but the actual engine is often an engineered version with very different performance.

👉 Bottom line: Don’t just buy the illustration. Buy only if the structure, the indexes, and the trade-offs align with your goals.

🚨 Don’t Get Trapped by Annuity Sales Pitches

Many people sign into long contracts with hidden restrictions and disappointing returns — simply because they trusted the brochure.

Before you buy an annuity (or if you already own one), get a second opinion.

📌 We offer independent, fiduciary reviews of existing annuities and can walk you through the pros, cons, and alternatives — so you make decisions with clarity, not pressure.

👉 If you’re considering an annuity, or already have one and aren’t sure it’s working for you, let us review it before you commit further.

⚠️ Important Note

I am not a licensed financial professional nor advisor — just a person who has studied these contracts and shares insights as an independent researcher. This information is for educational purposes only. Always consult with a licensed fiduciary advisor before making financial decisions.