Annuities have been around for hundreds of years, yet many so-called financial experts still get them completely wrong. Too often, they take a small piece of truth and wrap it in layers of misinformation, misleading people into thinking annuities are a bad deal. I came across a possibly well-meaning but extremely ignorant video recently and wanted to debunk the biggest indexed annuity myths and explain what’s really going on.

Introducing A “Financial Commentator” Who Gets Almost Everything Wrong

Recently, a financial commentator named Clark Howard released a video claiming that annuities “stink.” He compared them to stock market investments and suggested insurance companies use fear to push these products on retirees. The problem? His claims are filled with half-truths, misunderstandings, and outright errors.

Annuities are not the same as stocks. They aren’t designed to deliver stock-like growth. They’re insurance products meant to provide stability and income protection—something the stock market can’t guarantee.

Let’s set the record straight.

Why Indexed Annuities Are More Popular Than Ever

In his video, Howard points out that annuities sell well after stock market downturns. That’s true—but not for the reason he claims.

Why People Turn to Annuities After Market Crashes:

- Stocks and bonds can both lose value at the same time. This happened in 2022, leaving many investors frustrated.

- People look for alternatives when traditional “safe” investments fail. Bonds are supposed to provide stability, but they don’t always work as expected.

- Indexed annuities protect against downside risk. Unlike bonds, which can lose value, indexed annuities provide guaranteed protection.

When the thing that was supposed to protect your money (bonds) fails, it makes sense to look for a better solution.

Indexed Annuities are a much better solution to bonds.

Comparing Indexed Annuities to Stocks is a Mistake

One of the biggest errors in the video is the idea that annuities should be compared to stocks. It’s also one of the most widely pushed indexed annuity myths. It’s really like comparing a Ferrari to a pickup truck—they do completely different things.

Feature	Indexed Annuities	Stocks
Purpose	Protect principal and provide guaranteed income	Grow wealth with market risk
Risk	No market losses	Can lose significant value
Returns	Capped or participation-based	Unlimited, but volatile
Dividends	Not applicable (no stock ownership)	Often included in total return

Indexed annuities don’t try to match stock market growth. They provide a stable, guaranteed portion of a portfolio, protecting against downturns while still offering reasonable growth potential.

Are Annuities Sold With Fear Tactics?

Howard claims annuity advisors “prey on fear” and celebrate market downturns. That’s a ridiculous accusation.

- The best advisors sell annuities in both good and bad market conditions.

- There’s a difference between fear-based selling and pointing out reality.

- People lost 17% on average in 2022—that’s not fear-mongering, that’s a fact.

No advisor wants to see retirees lose money. The goal is to provide solutions that help people retire with peace of mind.

Are Annuities Hiding Under Different Names?

Another claim is that annuity companies avoid using the word “annuity” because of its bad reputation. That’s just false.

Annuities are always disclosed as annuities in contracts, brochures, and applications. There’s no secret name for them. The only reason some people view annuities negatively is because of misinformation spread by people like Howard.

Do Indexed Annuities Cap Gains? Yes—And That’s the Tradeoff

Another of the most common indexed annuity myths is that indexed annuities promise stock market returns without risk. That’s not true—indexed annuities trade some upside potential in exchange for zero downside risk.

Here’s how they work:

- The insurance company buys call options on an index.

- When the index goes up, the annuity captures a portion of the total gain.

- When the index goes down, the annuity loses nothing.

Indexed Annuity Crediting Strategies:

Strategy	How It Works	Potential Outcome
Cap Rate	Limits the max gain per period (e.g., 8%)	If the index gains 12%, you get 8%
Participation Rate	You earn a percentage of the index gain (e.g., 50%)	If the index gains 12%, you get 6%
Spread	A fee is deducted from gains (e.g., 3% spread)	If the index gains 12%, you get 10%

These strategies allow annuities to provide growth without risk.

Do Annuities Have Huge, Complex Contracts?

Howard suggests annuities have massive legal documents full of fine print. That’s misleading.

- Most annuity contracts are 2-10 pages long.

- Only variable and buffered annuities have long disclosures.

- Fixed indexed annuities are simple compared to investment prospectuses.

The idea that annuities are impossible to understand is just another scare tactic.

What About Surrender Charges?

Howard claims annuities lock up your money with “massive” surrender charges. That’s misleading.

How Surrender Charges Actually Work:

- Most annuities allow 10% penalty-free withdrawals per year.

- Surrender charges only apply to early withdrawals beyond that amount.

- These charges decrease over time, often starting at 10% and dropping to 0% after 7-10 years.

Howard ignores the fact that stock market losses can be worse than annuity surrender charges. Losing 17% in a market crash is effectively a forced surrender charge with no guarantees of recovery.

Do Annuities Have High Commissions?

Another false claim is that annuity commissions are excessive. In reality:

- Commissions range from 2.5% to 8%, depending on the product.

- They are paid by the insurance company, not the client.

- They do not reduce the client’s account balance.

Compare that to stock market fees:

- Advisors charge 1% per year, even if you lose money.

- Over 10 years, a 1% fee on $500,000 is $50,000, paid by the client.

- An annuity commission of 5% would be a one-time $25,000, paid by the annuity company, not the client.

So which one is really “too expensive”?

Final Thoughts: Annuities Serve a Purpose

Indexed annuities aren’t for everyone, but they play an important role in retirement planning. When used correctly, they:

- Protect against market downturns

- Provide stable, tax-deferred growth

- Offer guaranteed income options

Howard and other financial commentators keep making the same mistake—comparing annuities to stocks and ignoring the benefits they provide. If annuities were so bad, why have they been around for centuries?

If you want to see a full breakdown of these myths and watch the original video being discussed, check out the full episode. It’s important to get the facts before making decisions about your retirement.

Episode 64: Busting Dumb Indexed Annuity Myths