The Annuity Exit Strategy: When the Promise Doesn’t Match the Reality
When the promise of safety doesn’t match the reality of results.
Today, many investors find themselves disappointed and in some cases betrayed, by what they once believed was the perfect solution: an annuity.
This is far more common than most people realize.
Years ago, guarantees, income riders, and downside protection sounded incredibly appealing, especially duringvolatile markets. Unfortunately, many investors eventually discover that the promises they bought into don’t alignwith the results they actually experience.
A Real-World Example
Several years back, I had a client pull nearly $1 million out of a well-managed portfolio against my advice. He was convinced an annuity offered something “better”, safer, more predictable, and more sophisticated.
I warned him repeatedly about:
- The layered expenses
- The complexity
- The likelihood that long-term results would disappoint
He didn’t want to hear it.
Fast forward to today. He’s now doing everything he can to exit that annuity as quickly as possible withouttriggering penalties, after years of frustration and underwhelming results. While the broader markets moved sharplyhigher, his annuity barely budged.
When he confronted the salesperson, the “advisor” who sold him the product, he was told: “Muted returns are to be expected. That’s just how these work.”
That was not the expectation set when the annuity was sold. Not even close.
Why Do Smart People Fall for Annuities?
This is the question that puzzles many investors after the damage is done. In my experience, it comes down to threekey reasons:
1. Highly Skilled Salespeople
Annuities are sold, not discovered. The people selling them are often incredibly likable, polished, and persuasive. I have friends in the annuity business. They are good people, great salesmen. I understand why investors trust them.
But likability doesn’t equal objectivity.
2. Complexity by Design
Annuities are dynamic, complicated products: Multiple riders, layered fees, contract clauses, participation rates,and caps and spreads.
Most investors don’t stand a chance of fully understanding what they’re buying without a law degree and a spreadsheet. That complexity isn’t accidental, it’s how the product gets sold.
3. Fear Disguised as Safety
The desire for safety is real. Market volatility is uncomfortable. Guarantees sound comforting.
But guarantees are never free. The safety many investors seek comes at a very real and often very steep costs like reduced upside, high ongoing expenses, limited liquidity, and long surrender periods.
If Your Annuity Works for You, That’s Fine
Let me be clear: If your annuity truly gives you peace of mind and aligns with your goals, that’s perfectly okay. Butpeace of mind should come from understanding the trade-offs, not discovering them years later.
Considering an Exit Strategy
If you’re frustrated, disappointed, or simply confused by your annuity, you are not alone. There may be optionsavailable:
- Penalty-free withdrawal windows
- Strategic 1035 exchanges
- Gradual exits aligned with surrender schedules
- Repositioning into more transparent, flexible strategies
The most important step is getting a second opinion, ideally from an independent advisor who is not licensed to sell annuities and has no incentive to replace one complex product with another.
Final Thought
Annuities aren’t evil. But they are often oversold, misunderstood, and poorly explained.
If something feels off, trust that instinct. Ask better questions. Get independent advice. And remember: Clarity is worth more than any guarantee written in fine print.
Interested in a second opinion on your current portfolio?
