An annuity is a contract you purchase from an insurance company, typically in exchange for a lump sum of money, that promises to pay you a stream of income for a set period or for the rest of your life. While that sounds appealing, annuities are complex financial products loaded with fees, restrictions, and fine print that can significantly erode the value you actually receive. They are most commonly sold, not recommended, by commissioned salespeople, meaning the person presenting you with an annuity is often motivated by a paycheck, not your best interests.
A Popular Product with a Complicated Reality
If you've sat through a free dinner seminar in Grand Rapids, Holland, Kalamazoo, or anywhere else in West Michigan, there's a good chance someone tried to sell you an annuity. They're everywhere in the retirement planning world; and for good reason, at least from the seller's perspective. Annuities are one of the highest-commission financial products on the market.
The pitch is usually compelling: guaranteed income for life, protection from market downturns, tax-deferred growth. And to be fair, annuities aren't inherently evil. In very specific circumstances, for certain investors, they can serve a purpose. But the gap between how annuities are sold and what they actually deliver to most retirees is wide enough to drive a truck through — and it's a gap that deserves an honest conversation before you sign anything.
Who Is Actually Selling You an Annuity?
This is one of the most important questions in all of retirement income planning, and most people never think to ask it.
The majority of annuity salespeople are not fiduciaries. A fiduciary is a financial professional who is legally required to act in your best interest at all times. A commissioned annuity salesperson is not bound by that standard. They are licensed insurance agents who are required only to recommend products that are "suitable", a much lower bar that doesn't necessarily mean the product is the right one for you, only that it isn't obviously inappropriate.
Important Distinction
A commissioned annuity salesperson earns a substantial upfront payment when you buy, often 5% to 8% of your premium, sometimes more on certain indexed products. That commission comes directly from the insurance company, built into the product's cost structure. You rarely see this number disclosed clearly because it doesn't appear as a line item on your statement. It's baked in.
When someone earns thousands of dollars the moment you sign, it creates an obvious conflict of interest. That doesn't mean every annuity salesperson is dishonest, many genuinely believe in what they're selling. But the incentive structure isn't aligned with your retirement success. It's aligned with their commission.
A true fiduciary adviser, by contrast, earns their fee whether they recommend an annuity or not. They have no financial stake in which product you choose; which is exactly the kind of advice you want when you're mapping out your financial future in retirement.
The Real Risks of Annuities in Your Retirement Portfolio
Below are the most significant risks that are routinely understated, or skipped entirely, during the sales process.
- Surrender charges and illiquidity. Most annuities lock your money up for a surrender period that can last anywhere from 5 to 10 years. If you need access to your funds during that window — for a medical emergency, home repair, or any other unexpected expense — you'll pay a surrender charge, often starting at 7% to 10% and declining over time. For retirees who need flexibility, this can be a serious problem.
- Layers of fees that quietly compound. Variable and indexed annuities are notorious for stacking fees. There are mortality and expense charges, administrative fees, fund management fees, and optional rider charges (income riders, death benefit riders, etc.). It's not unusual to see total annual costs of 2.5% to 3.5% or more. Over a 20-year retirement, that drag can amount to a staggering reduction in your overall wealth.
- Caps, spreads, and participation rates that limit your upside. Indexed annuities often appeal to people because they promise some exposure to market gains without market losses. What the brochure sometimes glosses over: your gains are capped, spread, or participation-adjusted. If the S&P 500 returns 18% in a year, you might receive 5% or 6% due to these built-in limitations.
- Inflation risk in fixed products. A fixed annuity that pays you $2,000 per month might feel comfortable today. But if inflation averages even 3% annually, that same $2,000 will have roughly half the purchasing power in 24 years. For retirees in West Michigan who are planning a 25- to 30-year retirement, this can quietly devastate your standard of living.
- Complexity designed to obscure. Annuity contracts are notoriously difficult to read. The language is dense, the moving parts are numerous, and the illustrations provided during the sales process often show hypothetical best-case scenarios. Buyers frequently don't understand what they've purchased until years later — and by then, surrender charges make it expensive to get out.
- Lost opportunity cost. Money tied up in an annuity is money that isn't working in a diversified, transparent investment portfolio. For many West Michigan retirees with long time horizons, the opportunity cost of locking into an annuity's limited return structure, compared to a well-managed portfolio, can be substantial over time.
Why BeManaged Financial Services Doesn't Use Annuities
At BeManaged Financial Services, serving families across Grand Rapids, Ada, East Grand Rapids, Rockford, Holland, Kalamazoo, and the broader West Michigan area, we've made a deliberate decision: we don't use annuities in our clients' retirement portfolios.
That's not because annuities are universally wrong for every human being on earth. It's because we are fiduciaries, and the commission structure embedded in annuity products creates a conflict of interest that we're simply not willing to introduce into our client relationships.
When we sit down to build a retirement plan for a family in Ada or a couple preparing to leave the workforce in Holland, our only question is: what is the best strategy for this specific household? We earn no commission on anything we recommend. There is no annuity company writing us a check when you sign. Our advice is ours — unconflicted and fully oriented toward your outcome.
Instead of annuities, we build retirement income strategies using transparent, low-cost investment portfolios, systematic withdrawal planning, Social Security optimization, and tax-efficient distribution sequencing; tools that give our clients flexibility, visibility, and genuine control over their financial future.
For clients in Rockford, Kalamazoo, East Grand Rapids, and across West Michigan who are concerned about running out of money in retirement, there are real, effective strategies to create reliable income without surrendering a large chunk of your wealth to an insurance product you may not fully understand for years.
What to Do If You've Already Purchased an Annuity
If you already own an annuity, don't panic. The right move depends on where you are in the surrender period, your current tax situation, the type of annuity you hold, and how it fits, or doesn't, into your broader financial picture. Sometimes the best answer is to hold and optimize the strategy around it. In other cases, there may be a case for an exchange or surrender. This is exactly the kind of analysis that fiduciary retirement income planning is designed to provide.
What we'd encourage you to avoid is making a hasty decision based on emotion in either direction; either rushing to surrender and triggering unnecessary charges and taxes, or holding an underperforming product indefinitely because it seems too complicated to address.
The Bottom Line
Annuities are financial products designed to be sold, not independently discovered. The people presenting them earn substantial commissions. The contracts are complex. The fees are real and compounding. And the limitations on liquidity, growth, and flexibility, can work directly against the kind of retirement most West Michigan families actually want to live.
That doesn't mean the right answer for everyone is "never touch an annuity." It means the right answer requires honest, unconflicted guidance from someone who has no financial stake in what you decide. At BeManaged Financial Services, that's exactly what we offer, straightforward retirement planning built around your life, not our compensation.
Let's Talk About Your Retirement — No Pressure
Whether you're approaching retirement in Grand Rapids, Ada, Holland, Kalamazoo, Rockford, East Grand Rapids, or anywhere in West Michigan, we'd love to have a straightforward conversation about where you stand and what a clear, fee-only plan could look like for you.
Schedule a Consultation No sales pitch. No commission. Just an honest conversation about your retirement.