Fidelity says retirees have annuities all wrong

Annuities have earned a reputation for complexity and high costs, and this keeps millions of Americans from considering products that could strengthen their retirement plans. Total U.S. annuity sales climbed 7% to $464.1 billion in 2025, marking a fourth consecutive year of record-breaking demand, LIMRA reported.

Yet even as more Americans turn to annuities for guaranteed lifetime income, deeply held misconceptions continue to shape how people evaluate these insurance contracts. A new analysis from Fidelity Investments identifies five of the most damaging annuity myths and explains why each one deserves a closer look from anyone planning for retirement.

The five annuity misconceptions Fidelity wants you to reconsider

Each of the five myths Fidelity tackles reflects a common misunderstanding about how annuities work, what they cost, and who can benefit from owning one.

Fidelity's five annuity myths at a glance

• Myth 1: Annuities are only for retirees. Fidelity found that deferred annuities can serve as an additional tax-deferred savings vehicle for workers who have already maxed out contributions to employer-sponsored retirement plans and IRAs.
• Myth 2: Annuities cost too much. Variable annuity fees vary widely across the industry, with some low-cost options available at under 50 basis points annually, though adding guarantees and optional riders increases total expenses.
• Myth 3: There is no benefit to buying an annuity for income before retirement. Deferred income annuities and guaranteed lifetime withdrawal benefit riders allow workers to secure a future income stream years before retirement and insulate part of their nest egg from market volatility.
• Myth 4: Retirement accounts can easily replace lifetime income. Outside of Social Security and traditional pensions, annuities remain the only financial product that guarantees a stream of income a retiree cannot outlive.
• Myth 5: The insurance company keeps your money when you die. Most deferred annuities pass the account value to designated heirs, and income annuities offer payout options that continue payments to beneficiaries after the contract holder passes away.

All insights are drawn from Fidelity's Annuity Facts and Myths report.

Annuity costs vary widely and depend on the features you select

This may be the most persistent barrier keeping people away from annuities, and Fidelity addressed it with specific numbers that challenge the blanket assumption that all annuities are expensive.

The average annual variable annuity fee is roughly 1.05%, though costs vary widely across the industry and increase with optional guarantees. Low-cost deferred variable annuities can be found for under 0.50% per year, Fidelity noted.

A higher financial rating or Comdex score does not guarantee better annuities, it only reflects an insurer's financial strength. Many top-rated insurers offer lower payouts, higher fees, and fewer income benefits than competitors with slightly lower ratings

Stefne Lynch, vice president at Fidelity Investments Life Insurance Company, emphasized the importance of verifying an insurer's financial strength before purchasing a contract, recommending that buyers check ratings from independent agencies such as Standard & Poor's or Moody's.

Variable annuities generally charge fees that are clearly disclosed in the contract, while fixed annuities typically build their costs into the interest rate or income payout, the firm explained.

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Pre-retirement annuity purchases can protect decades of savings

For workers within 10 years of retirement, Fidelity highlighted two annuity types that can help protect savings from a late-career market downturn and provide a predictable income floor.

The first, a deferred income annuity, allows buyers to select a future start date for payments, creating a guaranteed income stream regardless of how markets perform between the purchase and payout dates, the report explained.

Fidelity also noted that deferred income annuities allow incremental contributions over time, a strategy similar to dollar-cost averaging that lets buyers stagger purchases across different interest rate environments and potentially lock in higher future rates.

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The second, a deferred annuity with a guaranteed lifetime withdrawal benefit (GLWB) rider, offers more flexibility by preserving access to the account value while still locking in predictable lifetime income once withdrawals begin, Fidelity indicated.

Contracts with guaranteed lifetime withdrawal benefits offer more flexibility by allowing account access while still locking in a minimum income floor, though the monthly payout is typically lower than what a deferred income annuity provides, Fidelity noted.

In April, CNBC remarks on annuity buying decisions. Lee Baker, a certified financial planner and founder of Claris Financial Advisors in Atlanta, said that for consumers concerned about outliving their income, a single-premium immediate annuity or a deferred income annuity provides certainty at a low cost and raises the guaranteed income floor in retirement.

Annuities offer the only private guarantee against outliving your money

This challenge centers on the belief that a well-managed investment portfolio can reliably replace the guaranteed income an annuity provides throughout a full retirement.

Because market returns are unpredictable and life expectancy continues to rise, no withdrawal strategy from a traditional brokerage or retirement account can promise income that lasts for life, the firm stated.

Annuities solve this problem through mortality credits, a pooling mechanism in which premiums from contract holders who pass away earlier subsidize payments to those who live longer, Fidelity explained in its analysis.

The Alliance for Lifetime Income's 2025 Protected Retirement Income and Planning Study found that 54% of pre-retirees aged 45 to 75 worry about outliving their savings in retirement.

Beneficiary protections mean annuities do not have to end when you do

This may be the one that causes the most emotional resistance to annuities: the fear that an insurance company will keep your entire investment if you die shortly after purchasing a contract.

Most deferred annuities are structured to transfer the remaining account value directly to named beneficiaries, and income annuities offer optional payout structures that continue payments to heirs, the report confirmed.

Choosing a beneficiary payout option rather than a life-only contract may reduce the monthly income amount, but it ensures that surviving family members receive the remaining value of the annuity.

Record annuity sales signal growing demand for guaranteed retirement income

The surge in annuity sales over the past several years reflects a broader shift in how Americans approach retirement income planning, with more consumers exploring products that offer contractual guarantees alongside traditional market-based strategies.

Fixed indexed annuity sales reached a record $127.9 billion in 2025, while registered index-linked annuity sales grew 20% to $79.5 billion, marking an eleventh consecutive year of growth for that product category, LIMRA reported.

Fidelity's analysis suggests that the gap between consumer perception and actual product features may be influencing how Americans approach retirement income decisions.

Fidelity and LIMRA both noted that individual circumstances vary, and the firm recommended that anyone evaluating an annuity discuss available options with a financial consultant before committing to a specific product.

Related: What to Know about Including Annuities in Your 401k

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This story was originally published May 21, 2026 at 9:47 AM.