Why We Rarely Recommend Annuities (and You Probably Shouldn’t Own One)

Let’s talk about annuities — the financial product that just won’t die.

They’re pitched as “guaranteed income,” “market protection,” or “the smart way to retire.” The brochures are polished. The language sounds secure. And the person explaining it to you always seems really confident (and really motivated).

But here’s the truth: Most annuities are more confusing than helpful — and way better for the person selling them than the person buying them.

They’re like the timeshare of retirement products: loaded with fine print, full of promises, and hard to unwind once you’re in.

Let’s break down why annuities are often the wrong fit for most people, what really goes on behind the scenes, and what we recommend instead.

First: Let’s Follow the Money

You know that saying: “Never ask a barber if you need a haircut”?
The same applies here.

When a traditional advisor or insurance agent sells you an annuity, they typically earn a 5%–7% commission upfront.

So, if you roll $500,000 into an annuity, they get a $25,000–$35,000 payday — right away. Often hidden. Often baked into the contract. And very rarely disclosed with full transparency.

And once you sign, they move on. There’s no ongoing relationship, no incentive to help you manage your income or adjust to market changes. They’ve already been paid.

Compare that to a fiduciary advisor (like us at Compound Advisory), who manages your money with transparent, ongoing fees and no product kickbacks.

One model is built to serve your goals. The other is built to move product.

The Lock-Up Period: It’s Your Money — But You Can’t Touch It

Most annuities come with something called a surrender period. Translation: a lock-up.

Here’s how it works:

• You invest your money into the annuity.

• You can’t touch it — at least, not freely — for 6 to 10 years.

• If you try to withdraw too early, you could pay penalties of 7%–10%. On your own money.

Some annuities allow limited withdrawals (maybe 5%–10% per year), but anything above that? Penalized. Heavily.

And if life happens — a family emergency, a medical expense, a business opportunity — you’re stuck. Because your financial flexibility has been handed over to the insurance company.

You gave them control of your money… and they’re not giving it back on your timeline.

The “Guaranteed Income” Illusion

Annuities love to market “guaranteed income for life.” And yes, technically, they can offer that. But here’s the truth no one likes to say out loud:

The “guaranteed income” is often just your own money being slowly returned to you — with heavy fees, strict terms, and almost no growth.

Here’s what most variable or indexed annuities include:

• Riders that add complexity and fees (1%–2% per year)

• Caps and participation rates that limit how much upside you actually receive

• Mortality and expense charges (usually 1%+ per year)

• Locked-in annuitization that means once income starts, you no longer control the asset

So you’ve given up liquidity, access, and flexibility — in exchange for… a glorified payment plan on your own principal.

And after fees? You might be left with returns lower than a basic, diversified portfolio would’ve delivered over time — with none of the restrictions.

The Fine Print Is Brutal

Let’s talk contracts.

Most annuity paperwork is:

• Over 100 pages long

• Full of dense legal language and proprietary formulas

• Loaded with footnotes, exceptions, and “what ifs”

You’ll find:

• “Guaranteed” returns that aren’t really guaranteed

• Payout options that don’t transfer to heirs

• Penalties if you change your mind or miss a deadline

If it takes three cups of coffee and a lawyer to explain your retirement income plan, that’s a red flag.

Your financial plan should be simple. Understandable. Yours.

So Why Are They Still Sold?

Because annuities are easy to sell — and hard to understand.

They play on emotion: safety, security, fear of market losses, fear of outliving your money.

But behind the curtain, most annuities are just expensive, inflexible contracts that deliver average results with above-average fees.

They’re sold, not bought. Because if people really understood the terms, most wouldn’t sign.

What We Recommend Instead

You want income in retirement? Great. Let’s build it — but with transparency, flexibility, and control.

At Compound Advisory, here’s what we help clients do:

1. Use a Diversified, Properly Allocated Portfolio

This includes:

• Dividend-paying stocks

• Bonds or fixed-income vehicles

• Low-cost funds with global diversification

• Strategic asset location for tax-efficiency

2. Set Up Dynamic Withdrawal Plans

We tailor income withdrawals to your actual life:

• Pulling from winners

• Adjusting based on market performance

• Harvesting strategically so you don’t sell at a loss

3. Build a Cash Reserve

Holding 12–36 months of living expenses in cash or cash-like assets gives you breathing room when the market drops — so your long-term portfolio can keep compounding.

4. Use Low-Cost, No-Commission Annuities (If Needed)

Yes, there are no-load annuities. They’re cheaper, simpler, and fee-transparent — but they rarely get mentioned by traditional sales-driven advisors (because there’s no commission).

If you truly need income guarantees or longevity protection, we may include one — but as a tool, not the plan.

Annuity vs. Our Income Strategy: Side-by-Side

Final Thought: Annuities Aren’t Evil — They’re Just Oversold

There’s a time and place for certain annuities — especially when:

• You have no other pension or guaranteed income source

• You’re worried about longevity risk

• You’ve maxed out every other income option

• You understand the terms and are okay with the tradeoffs

But for most people?

They’re unnecessary, overpriced, and incredibly inflexible.

At Compound Advisory, we don’t sell products. We design strategies.
We don’t earn commissions. We earn trust.

So before you lock up hundreds of thousands (or millions) in something you don’t fully understand — talk to someone who gets paid to protect your future, not sell you a contract.

Looking for retirement income that works for real life — without the fine print?
Let’s talk at compoundadvisory.co

There’s a smarter way to get the income, peace of mind, and flexibility you deserve.

We’ll show you how.