If you’ve ever looked at a lifetime income annuity and thought, “This looks too good to be true,” you’re not alone.
Clients tell me this every week.
“Guaranteed income for the rest of my life? No stock market losses? Stable payouts? What’s the catch?”
There are drawbacks you need to understand — but they’re not deal-breakers. They’re simply the trade-offs that make guaranteed income possible.
Below, I’ll explain exactly how these contracts work, where the catches show up, and how to decide if the benefits outweigh the drawbacks.
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!)
Tip: See how much an annuity could pay you using our annuity calculator.
Yes, The Income Really Is Guaranteed — But Here’s Why
Insurance companies know exactly how long people live on average.They have decades of mortality data, and that’s how they can promise lifetime income mathematically — not magically.
For example, a 62-year-old putting in $500,000 today might get:
- $57,000/year if they wait 5 years to start income
- $42,000/year if they start in 12 months
Those checks arrive every year for life, whether the market crashes, stays flat, or surges.
💡 Pro Tip: The payout doesn’t depend on your account value. It depends on your benefit base — the number the insurance carrier uses to calculate your income.
👉 Want help comparing the highest-paying lifetime income options? Schedule a call.
Your Account Value Can Hit Zero (And That’s Normal)
Here’s the part that surprises people:
If the market indexes inside your annuity experience flat returns, a recession hits, or you activate income, your account value can run to $0 over time.
This is not a problem for your guaranteed income — you still get paid for life.
But it is a drawback if:
- You want to leave this specific contract behind to heirs
- You care about how long the internal account stays positive
- You prefer visible “growth” even if the income is guaranteed
Many people don’t care. They just want the lifetime check and peace of mind.
But if legacy is important to you — this is something you must know.
Income Riders Come With Fees (But Often Make You More Money)
Here’s the controversial one: Income riders cost money — often tens of thousands over time.
So is that bad?
Not necessarily.
Example:
- With the rider fee: $42,000/year guaranteed
- Without the rider fee: $30,000/year guaranteed
Over 35 years, that’s $385,000 MORE income with the rider — even after paying about $100,000 in total fees.
So the real question isn’t “Is the fee bad?” It’s: “Do I want the additional lifetime income that the fee buys?”
Many retirees do.
💡 Pro Tip: Rider fees come out of the account value, NOT your retirement income.
👉 Want the highest guaranteed income numbers available today? Schedule a call.
Joint Lifetime Income Pays Less, But Protects Your Spouse
If you’re married, this catch matters:
A single-life payout only covers you.
If you pass away and the account value is gone, your spouse gets no income or refund.
That’s why I usually recommend joint life income if you’re close in age.
Example for a couple, both 62:
- $52,000/year joint lifetime income
- Guaranteed for both of your lives
- Even if the account hits $0 at age 78
This prevents a surviving spouse from losing your pension overnight if you die early.
You Can’t Just Cancel Anytime Without Penalties
Lifetime income annuities come with surrender charge schedules — usually 7–10 years.
That means if you suddenly decide:
“I want all my money back, right now,”
…you’ll pay a penalty.
Example:
If your account value is $528,000 after 5 years, your cash surrender value might be around $494,000. That’s the cost of breaking the contract early.
For most people who actually use the annuity for income, surrender charges never come into play. But it’s still a catch worth knowing.
They Don’t Earn Stock Market-Level Growth
Fixed indexed annuities protect your money from losses — but in exchange, you get:
- Caps (max return per year), or
- Participation rates (e.g., 60% of the S&P 500 increase)
This means:
- You’ll never lose money from market declines
- But you’ll never get full stock market returns either
For people in their 50s, 60s, and 70s who want safety and predictable income, that’s usually a good trade-off.
But it is a trade-off.
💡 Pro Tip: For growth-focused FIAs, look for participation rates above 40-50% and carriers with a strong history of renewal rate stability.
Conclusion
Guaranteed lifetime income annuities aren’t magic — they’re math.
And when structured correctly, they give retirees something the stock market simply can’t:
A paycheck you can never outlive.
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