Annuity Payout Mistakes That Cost Retirees Thousands

If you’re looking at annuities for retirement income, the biggest risk often isn’t “picking the wrong company.”

It’s making one or two avoidable payout mistakes that quietly cost you $10,000… $50,000… even $100,000+ over time.

In this article, I’m going to walk through the most common annuity payout mistakes I see retirees making right now—and how to avoid them with simple, practical research.

Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!)

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Mistake #1: Buying the annuity your advisor “pushes” without comparing payouts

This happens all the time.

Someone sits down with an advisor they trust. The advisor recommends an annuity. The retiree signs. Later they realize:

• The annuity doesn’t match their real goal (like highest lifetime income).
  
• The “great growth story” was mostly hypothetical.
  
• The advisor earned a big commission, but the payout wasn’t actually competitive.

I spoke with someone recently who said:

“My advisor told me to buy it, so I bought it. Afterwards I wondered… why did I buy this?”

When we reviewed it, the product had:

• Very little growth
  
• A bonus that looked attractive on paper
  
• But it didn’t create the income he actually needed

Why this mistake gets expensive fast

Because once you’re in, getting out can be difficult.

In many cases, you’re looking at:

• Waiting at least two years to exit (sometimes longer)
  
• Surrender charges if you leave early
  
• Needing a “replacement” annuity that the carrier will accept (often only if the new one has a bonus)

The real fix is simple: compare contracts before you commit.

👉 Want help comparing the best payout options? Schedule a call here.

Mistake #2: Falling for “projected income” instead of contractual income

This is one of the most dangerous payout traps—because it sounds smart.

An advisor may show you something like:

• “This index is projected to grow to X”
  
• “The participation rate is 200%”
  
• “If it hits these numbers, your income will be Y”

Then you look closer and realize:

• It’s not guaranteed
  
• It’s hypothetical and illustration-based
  
• It may be tied to an index you’ve never heard of
  
• The index might have a short history (or is mostly back-tested)

Here’s how I look at lifetime income annuities:

I want contractual income.

A contract that says:

 “This is your lifetime income amount. It won’t go down. No surprises.”

Because in retirement, you can’t pay your bills with “projected.”

A real-world example: how the wrong contract can cost thousands per year

Let’s say a couple is:

• Both 62
  
• In Montana
  
• Putting $600,000 into an annuity for lifetime income

In a comparison, you might see something like:

• One option pays around $62,000/year
  
• Another pays $57,000/year
  
• Another pays $61,000/year

That difference isn’t small.

A $5,000/year gap can mean:

• $50,000 over 10 years
  
• $100,000 over 20 years
  
• And that’s before you even consider opportunity cost

This is why I tell people to research payout levels first… before brand names, before “story,” before shiny features.

👉 Want to see today’s payouts in seconds? Use the annuity calculator at my website.

Mistake #3: Choosing a “big name” carrier assuming it automatically pays more

I hear this a lot:

“Shouldn’t I just go with the biggest company?”

Not necessarily.

Some very well-known companies are strong financially—but may not offer the best payout for your situation.

And here’s the part most retirees don’t hear:

Some companies tend to be heavily promoted because they can pay higher commissions.

That doesn’t mean the product is “bad.”

It just means you should verify the payout instead of assuming the brand name equals the best income.

My approach is simple:

• Sometimes commissions are high
  
• Sometimes they’re low
  
• Either way, the only thing that matters is what creates the best outcome for you

Using “LTC doubler” features as your long-term care plan

Some annuities offer enhanced payout features that can “double” income if you qualify for long-term care.

That can look amazing at first glance.

But here’s what’s often missed:

• The doubling is typically for a limited time
  
• The carrier is basically accelerating (liquidating) your own account
  
• If the enhanced payout period ends (or the account depletes), income will drop back to the base guaranteed amount

In many cases, these features can be a helpful extra, especially early on.

But if you want true long-term care coverage, many people are better served by looking at separate long-term care planning, rather than assuming the annuity rider is a complete LTC solution.

Mistake #5: Surrendering an annuity too soon and getting crushed by penalties

This is the “double whammy” mistake:

1. Someone buys the wrong annuity (because they didn’t compare first)
   
2. Then they try to get out quickly

That’s where surrender charges can be brutal.

It’s common to see surrender charges as high as 10%, and depending on the contract you may also face an MVA (Market Value Adjustment).

What is an MVA in plain English?

An MVA is an adjustment based on the interest rate environment.

• If interest rates rise after you buy the annuity, the MVA can be negative (reducing what you get if you surrender).
  
• If interest rates fall, the MVA may be positive.

Either way, the key point is this:

Surrendering early can cost real money… very fast.

In the example from the script using a $600,000 deposit:

• Surrendering soon could show a cash surrender value around $570,000 (about a $30,000 hit)
  
• In a “no growth” scenario, it could be closer to $537,000 (a much bigger loss)

That’s not a theory. That’s what early exits can look like.

The easiest way to avoid this is to slow down before you buy, compare options, and make sure the contract matches your income goal.

Mistake #6: Not understanding which “type” of annuity you’re actually buying

One reason retirees get burned is they think all annuities behave the same. They don’t.

Here are three categories mentioned in the script, in plain terms:

• SPIA / DIA (annuitization-style income):
  You give the insurance company a lump sum, and they pay you guaranteed income for life. Typically: no cash balance, and you generally can’t “get your money back” like a fixed index annuity with an income rider.
  
• Income rider annuities:
  These often provide some of the strongest income payouts, depending on the contract, age, and timing. This is what I focus on most often because it can produce higher lifetime income in many situations.
  
• QLAC (Qualified Longevity Annuity Contract) /QLAC-style planning (as referenced):
  Used for specific retirement planning strategies tied to deferring required distributions (RMD planning). Very specific purpose, not a general “best annuity” tool.
  

This is why generic calculators online can be misleading.

You want the calculator that matches the exact goal you’re solving for.

Conclusion

Annuities can be excellent tools when they’re chosen correctly.

But the wrong annuity, chosen for the wrong reasons, can quietly cost you tens of thousands over your retirement.

The solution is straightforward:

• Compare contractual payouts
  
• Don’t rely on projections
  
• Understand surrender penalties before you sign

Need help with finding the best annuity for your retirement?

Click here to schedule a call with me.

On the call, I can help you:

• Determine what type of annuity is best for you
• Find the highest paying annuities for your unique situation
• Answer any other questions you may have

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