In recent years, fixed indexed annuities have exploded in popularity. In fact, 2024 saw a record-breaking 31% increase in fixed indexed annuity sales, with more than $125 billion redirected from traditional investment avenues into these products. On the surface, this trend suggests confidence—but dig a little deeper, and a more troubling narrative emerges.
Despite their appealing marketing, most indexed annuities are a terrible investment. Not all, but the vast majority fail to deliver on their promises. And what’s worse, they’re often sold to investors who don’t fully understand the tradeoffs they’re making.
If you're considering an indexed annuity, this blog is your must-read warning label.
A fixed indexed annuity is an insurance product designed to offer a return linked to a market index, such as the S&P 500, without exposing your principal to market losses. Sounds like the best of both worlds, right?
The catch: caps, participation rates, and hidden fees often mean that you only get a fraction of the market’s upside—while locking your money up for years with limited liquidity.
Let’s unpack the real issues beneath the surface of this so-called “safe” investment.
It’s easy to assume that a product experiencing a 31% jump in sales must be a winner. But the financial industry doesn’t always reward what's best for consumers—it often rewards what's best for agents and insurance companies.
Why the sales spike? One word: commissions.
Agents are heavily incentivized to push indexed annuities because they can earn large upfront payouts—often in the range of 5% to 8%, or even more. That means a $200,000 annuity sale could earn an agent $10,000–$16,000 regardless of how well the product performs for you.
The result? Many investors are being steered into poor-performing contracts that line someone else’s pockets.
2025 CHANGES TO SOCIAL SECURITY
If you own a fixed indexed annuity and have seen 1% to 2% annual returns over the past several years, you’re not alone. In fact, that’s typical.
While insurers dangle the possibility of “market-like returns with no risk,” the fine print usually tells another story. These products often come with:
Let’s say the S&P 500 rises 12% in a year. With a cap of 5% and a 75% participation rate, your credited return might be just 3.75%—and that’s in a good year. In a flat or down year, your return might be 0%.
While some indexed annuities are advertised as “fee-free,” many come with optional riders that can quickly erode your returns. These riders often promise guaranteed income, enhanced death benefits, or inflation protection—but at a steep cost.
Typical rider fees range from 0.5% to 1.5% annually, which can drastically reduce your net return. Worse, these riders are rarely worth what you pay for them.
And even if you opt out of riders, many products include opaque pricing mechanisms that reduce your return without technically being called “fees.” For example, a low cap or spread may not show up as a fee—but it functions just like one by limiting your upside.
Here’s a critical truth: Not all indexed annuities are built the same. Even within a single insurance company, there may be dozens of product versions—some designed to be “consumer-friendly,” others loaded with agent incentives.
The vast majority of investors don’t know how to compare products intelligently. Even fewer know how to identify high-quality options with:
That lack of transparency creates a market where bad products thrive, and investors suffer in silence. You may never even realize how much better your annuity could have performed.
Most fixed indexed annuities come with long surrender periods—often 7 to 10 years. If you try to withdraw more than 10% per year during that period, you’ll pay a surrender charge that can be as high as 10%.
This lack of flexibility makes indexed annuities dangerous for anyone who might need access to their money—which includes most retirees at some point.
An indexed annuity is not a wealth-building tool. It’s more of a wealth-preservation strategy, and even then, only if you pick a good one.
In the transcript, one example is highlighted where a client earned 10.19% over a volatile year—a rare and fortunate outcome. But even that product had a cap: the client could only earn up to 10.5%, no matter how well the market performed. And that product had no fees, no riders, and a short-term lock-up—which are extremely rare in the broader annuity landscape.
Most indexed annuities aren’t that generous. In fact, many are built to deliver low, steady returns—just enough to keep you from complaining, but not enough to keep pace with inflation over time.
Riders sound appealing—guaranteed income for life, enhanced death benefits, and inflation protection. But here’s the truth:
These riders are used to sell the product, not to serve the client.
In most cases, the client doesn’t need the rider, doesn’t use the benefit, or could have obtained better results through a separate product (like life insurance or income annuities).
And if you add riders, your fee burden rises, often cutting your return in half—or worse.
ARE ANNUITIES A GOOD INVESTMENT? MAYBE.
Many advisors pitch indexed annuities as a way to achieve “peace of mind” in retirement. And it’s true—if the market tanks, your annuity won’t lose value. But let’s be clear:
You’re paying a significant price for that protection—both in lost opportunity and reduced growth.
Over a 10- or 20-year retirement, earning 2–3% annually instead of 5–7% (which a balanced portfolio might return) can translate to hundreds of thousands of dollars in lost income.
So yes, you might sleep better—but your money will be working a lot less hard for you.
Perhaps the most dangerous aspect of indexed annuities is how difficult they are to evaluate without professional help. Between obscure contract language, confusing fee structures, and misleading sales tactics, even sophisticated investors can be led astray.
If you don’t know how to:
...you’re not in a position to make a well-informed decision.
It’s not that every indexed annuity is inherently evil—there are a few good ones out there. But they are the exception, not the rule.
In most cases, indexed annuities:
Unless you are working with a truly unbiased expert—one who doesn’t earn a commission on your purchase—you’re better off avoiding indexed annuities altogether.
INVESTMENT FIRMS IGNORE THE MIDDLE CLASS. Learn more.
Before you sign a contract, ask yourself:
✅ Have I compared this annuity to at least three others?
✅ Do I fully understand the cap, spread, and participation rate?
✅ Are there any riders, and what do they cost annually?
✅ How long is the surrender period?
✅ What does my agent earn for selling this to me?
If you’re unsure about any of the answers, stop and seek a second opinion.
Indexed annuities are a complex, heavily marketed financial product—and most of them are more trouble than they’re worth.
We’ll evaluate your existing or proposed annuity—free of charge—and tell you exactly how it stacks up. No jargon. No sales pitch. Just honest guidance.
Because your retirement deserves clarity—not complexity. Book your consultation here.
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