6 Reasons People Do Not Use Annuities

November 19, 2021

I often wonder to myself, “why are more people not securing their retirement with a guaranteed income?”

I mean, all of the aspects of a happy retirement are there – guaranteed income, safety, security, no market risk, possible LTC benefits, and peace of mind. 

Take a look at this quote from the Financial Research Corporation:  “Our analysis shows that no other investment vehicle can rival the income annuity for retirement security.  There is no other vehicle in the marketplace that can convert assets into income as efficiently as the income annuity.  The simplicity of the product – combined with the high payout rates, liquidity features, and optional inflation rider – make the income annuity a product that will certainly gain popularity in the near future.”

So, why do some clients pass on the opportunity to put the worry of market volatility, and running out of money, behind them?

Sometimes, they were talked out of it by an advisor who does not understand annuities.  Or, an advisor knew they were going to take a pay cut from not being able to charge fees on managing that client’s money anymore.  Other times, it could be a friend who had a horror story about an annuity they owned at one time.  Normally in this scenario, their friend was put into the wrong annuity by someone who did not know what they were doing.

Regardless of the reason, it actually puts you at a disadvantage when you choose not to implement an annuity into a portion of your portfolio.  I actually created a video a few weeks ago that goes into detail on how portfolios with annuities outperform those that do not have annuities.  You can watch that video here:  Annuities Improve Portfolio Outcomes

But what do the experts have to say about this topic?  Believe it or not, this is a well-researched topic.  Let’s look at some of the top reasons people do not implement annuities into their retirement, in no particular order.  I will also address how Atlas can help you overcome those barriers.


1. Purchase vs. Transfer:


The point of an annuity, when it comes to income, is to do just that – give you an income.  However, when people think of the annuity in a ‘purchase’ framing, they are less likely to accept the purpose of the annuity. 

I’ll give you an example:

What sounds better to you?  Beef that is advertised as “75% Lean”, or beef that is advertised as “25% Fat”?  See what I’m getting at?  It’s all about how you frame it in your mind even though it’s saying the exact same thing.

The hardest thing I must do is shift the mindset of my clients from an ‘Investment’ mindset to a ‘Consumption’ mindset.  Meaning, it’s no longer about chasing interest rates, ROR’s, delta’s, IRR’s, or whatever other measurement was used in the accumulation phase of their retirement.

Once you walk away from the steady paycheck of a job or business, it’s a whole new world.  You need income.  You need cash flow.  And you need it to be guaranteed no matter what happens in the economy.

Now let’s look at the beef analogy using annuities:

“You should buy this annuity and it will give you a monthly income of $1,000 per month.”  What does that make you think when you hear that?  Maybe that you are making a giant purchase that you may, or may not, reap the benefits of.  That picture in your mind of handing over one giant check for a series of smaller checks is too big of a hurdle.  That’s how I hear most advisors that are anti-annuity frame annuities for their clients.  I believe that is a great disservice to the client.

Now, what do think when you hear it this way?

“You can transfer a portion of your portfolio to an annuity, and it will guarantee you and your spouse $1,000 per month in spendable income that will never run out, no matter how long you live.  It will continue to participate in market gains in the good years and be completely protected in the bad years.  If you both pass away early, the remainder of your money will be passed on to your beneficiaries.”

What does that description make you think?  Maybe that you’re allocating a portion of your money into an asset that will provide a lot of value to your life in retirement.

But depending on who you talk to, depends on how it is framed.  The first guy is saying, “25% Fat”, while the second guy is saying, “75% Lean”.  “Purchase” vs. “Transfer”.  It’s the same thing only framed in a different light.  Keep in mind that you are not “buying” an annuity.  You are allocating, or repositioning, a portion of your investments to give you guaranteed spendable income for the rest of your life.  And that’s IF you want to keep it the rest of your life.  Just because you transfer money to an annuity does not mean you have to keep it forever.  However, I’ve never had a client surrender an annuity that is designed for the purpose of income.


How do I help clients overcome this?


I will show you the correct amount to allocate to an annuity based on what your needs are — whether it’s income, growth, LTC, or legacy.  And I will help you remember this is not a life-long commitment.  If for some reason circumstances change, then you can reposition at the end of the term. 


2.  Overwhelmed by Annuity Options:


There are approximately 200 annuity companies.  Each company offers anywhere from 5 to 20 different annuities.  So, on the low end that is one thousand different annuities to choose from.  How do you know you are making the right choice?  Every advisor or annuity producer you speak with seems to offer you a different company and claims, “this is the best!”

That can be extremely frustrating.  So frustrating in fact, that most people just give up on the idea of protecting their money and guaranteeing their income for life.  There is an interesting book called, “Thinking Fast & Slow” which basically explains that you have two systems in your brain.  One that uses your “gut feelings” to make a decision, which is usually correct.  The other system uses complex functions to analyze more details.  The more the second system becomes engaged, the more exhausted you become. 

Most people know that having a guaranteed income for life is the right decision and System 1 is telling them, “Yes, do this.” 

But then System 2 becomes engaged when they start getting bombarded by desperate salespeople trying to sell them on a particular product or strategy.  And the result ends up being that they give up completely and stick with what they’ve always known.  Which is most likely a diversified portfolio, or just sticking with the advisor they’ve been with for years, even though it is a subpar plan. 

I hate seeing this play out because it is nothing but a huge disservice to your future.


How do I help clients overcome this?


First, I help you determine the purpose of the money (i.e., income, growth, LTC, legacy, etc.)  Second, I run your scenario in my software and compare all the best companies right next to each other and give you a printout of what you can expect.

No guessing.  No speculation.  No sales hype.  Just verifiable truth.  Then you make the decision.  That’s it.


3.  Multiple Steps to Funding the Annuity:


Studies have shown that when participants in a pension plan are given the choice between a lump sum or guaranteed payments, if the plan sponsor offers the guaranteed payments (i.e., the annuity) themselves, most participants take the guaranteed payments.  When the plan participant must move the money to someone else to provide the guaranteed payments, they end up taking the lump sum.

Most people, however, do not have the option to take guaranteed payments from plan sponsors, because they do not exist.  So, it is 100% on the back of the client to move the money and figure out where to take it.  At this point, you have every advisor and their grandmother trying to get you to jump on board with their plan, which can be very stressful (System 2 is kicking in).

To fund an annuity yourself you have to first, decide which annuity is the right fit for you.  We saw in the above example that’s where it stops for a lot of people due to the overwhelming number of choices and misinformation.

Second, you must initiate the transfer.  That entails getting on the phone with your current advisor, or their parent company, and informing them that you intend to move a portion of your money.  Basically, you are choosing to no longer do business with them.  At least with that chunk of money.  That phone call alone is enough to stop some people from securing their own future, as sad as that is to say.

Some companies are very easy to transfer money from.  Others make it seem as if it’s their money and you’re asking permission to have some of it.  You could be forced to speak to the person “in charge” of your portfolio, or you may be sent to what is known as, “retention.”  I’ve heard so many blatant lies, runarounds, and mischaracterizations to convince people NOT to move THEIR money that it makes me sick.

Why would these “retainers” make it so difficult for you to move YOUR money???  Because they are going to take a pay cut when you do.  Someone in this scenario is getting a guaranteed income.  It’s either you when you get the annuity.  Or it’s the advisor with YOU acting as THEIR annuity.  If they convince you not to move your money, you’re ensuring them a guaranteed income by paying their fees.  You become their annuity.


How do I help clients overcome this?


I will walk you through this process, step-by-step.  And I will even get on the phone with you, and I will call bull s*@t whenever I hear it from the person that is trying to stop you from securing your financial future.


4.  Fairness:


“That’s not fair.”  Remember hearing that from your kids?  Remember saying that as a kid?  Metaphorically, I hear clients say this all the time.  Normally in regard to crediting methods; such as caps, spreads, and participation rates.

When you have a Fixed Indexed Annuity, you will have a selection of indexes to track.  When the index does well, you will receive growth in your annuity.  When the index does poorly, all of your gains are locked in, and you will not lose a single penny (minus any withdrawals and/or expenses that you may have chosen as a rider – such as an income rider).

So, that sounds fair, right?  Where investors start to feel a sense of unfairness in annuities is when it comes to the crediting methods.  For instance, the index you have chosen to track is up 10% and you have a 50% participation rate, you will be credited with 5% interest. 

The misconception of unfairness is when the investor believes that the annuity company is keeping the other 5% for themselves.  I will write another newsletter on this topic soon, but I want to put this out there and I want to be very straightforward – the annuity company does not keep the other 5%.  Again, I will dive deeper into the financial workings of an annuity company’s profit margins in the near future.

But let’s say they did keep the other 5%, and we put this same scenario in terms of gambling at a Blackjack table in Vegas.  If the casino manager told you that every time you won a hand you would keep half of the pot and the casino would keep the other half, you would think that is a raw deal?  Probably,  until he tells you the next part – every time you lose a hand, the casino will pretend like it never happened, and you can take your bet off the table!

Honestly, how many people wouldn’t take that deal???  And how much would you bet on each hand if you knew you couldn’t lose your money???  I would venture to guess as much as possible!

Like I mentioned above, this is not how it works.  But even it was, can you honestly tell yourself that you wouldn’t take that deal at least with a portion of your retirement money?


5.  Liquidity:


“I don’t want to tie up all my money.”  This is another one I hear frequently.  Let me address the, “all of my money” part of this concern.  You cannot put all of your money into an annuity.  The annuity company will not allow it.  In fact, you have to have a certain amount of assets before they will even consider issuing the annuity.  I think one huge misconception with annuities is that this is an “all or nothing” deal.  The only amount that should be allocated to an annuity is the amount that will serve the purpose of that particular sum of money.

How about the, “tying up the money”, part?  This misconception is one based on old school Single Premium Income Annuities, or SPIA’s.  This is the type of annuity that you send a lump sum to the annuity company, and they send you a guaranteed monthly income.  They used to be totally illiquid, but just like your car has improved drastically from the one you drove as a teenager, so have the options with annuities.

SPIA’s are still very useful in certain circumstances, but this is where the liquidity fear comes from. In today’s annuities, you will still have 10% liquidity every year for the length of the agreement.


How do I help clients overcome this?


When you work with me, you will have an exact plan on how to use the annuity appropriately.  If we can only withdrawal 10% per year, that means we have purposely put an exact amount of money into that annuity because we plan on only using 10% of that money per year. 


6.  FOMO:


Also known as the “Fear Of Missing Out.”  This is an interesting one that was studied.  It basically comes down to ‘loss aversion’ vs. ‘risk aversion’.  Long story short, some people would rather keep their money at risk for the hope of a bigger gain even if it means a bigger loss.  Rather than protect their money from any loss if it means taking a smaller gain.


How I help clients overcome this:


You will have the best of both worlds.  When you protect a portion of your money – the portion that will ensure your survival in retirement – then you can use the remaining portion to go after the bigger gains with no consequences! 

However, when you do not have your living expenses secured, you will always be at risk of running out of money.  Or, you will always get subpar returns because your portfolio will be so diversified it will water down any opportunity for significant growth.

If you are one of the fortunate who has a pension and all of your living expenses are covered, there are still annuities that are designed just for growth and have no fees associated with them.  They can still give you phenomenal returns!


Hopefully, this newsletter gives you some insight into 6 of the biggest reasons people are not securing their retirements with annuities.  If any of these struck you on a personal level, let’s talk about it.  It’s a very easy process to get these concerns, or any that I missed, totally cleared up once and for all.  The best way to reach me is to click the “Schedule A Call” button at the top of the screen to book a 30-minute phone conversation or feel free to reach out to me directly at 636.926.6500.


All the best,



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Watch this short video series to learn which annuities I use and how I use them to get an average of 20% more spendable retirement income than any other advisor plans you've seen.

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