7 Annuity Myths That Keep Georgia Retirees Confused

Most annuity myths come from one of two places: a sales pitch that oversold the product, or a headline that trashed it. The truth sits in the middle. An annuity is a contract with an insurance company that can provide steady income or protected growth, but it also comes with surrender charges, tax rules, and trade-offs that need to be understood before you sign.

When I sit down with retirees in Norcross, Gwinnett, and across metro Atlanta, the same seven myths come up again and again. Here they are, debunked in plain English, along with what to check before you buy.

Key takeaways

• Annuities are not all the same. Fixed, fixed indexed, immediate, and deferred contracts work very differently.
• Annuity growth is tax-deferred, not tax-free. Earnings are taxed as ordinary income when withdrawn, and the IRS adds a 10% penalty on most withdrawals before age 59½.
• Most contracts pay the remaining value to your beneficiaries. Only a "life only" payout stops at death.
• Guarantees are backed by the claims-paying ability of the issuing insurer, not by the FDIC.
• Georgia gives you a 10-day review period after delivery to cancel an annuity for a full refund.

7 annuity myths that keep Georgia retirees confused

Myth 1: "All annuities are the same."

This is the biggest source of confusion. The word "annuity" covers several very different contracts:

• Fixed annuities credit a set interest rate the insurer guarantees for a period. The NAIC describes them as contracts that "guarantee a minimum credited interest rate."
• Fixed indexed annuities credit interest linked to a market index, with a floor (often 0%) and limits such as caps or participation rates.
• Variable annuities invest in market subaccounts and can lose value. They are securities, and I do not sell them.
• Immediate annuities start paying income right away. Deferred annuities grow first and pay later.

If you're comparing a multi-year guaranteed annuity to a bank CD, for example, see my post on MYGA vs. CD.

Myth 2: "If I die, the insurance company keeps my money."

This can be true for one specific choice: a "life only" income payout with no refund or period-certain feature. In exchange for the highest monthly check, payments stop at your death.

But most deferred annuities pay the remaining account value to the beneficiary you name. And most income payouts offer options such as "joint life," "life with period certain," or "cash refund" that continue payments or return unused money to your heirs. Ask to see every option in writing before choosing.

Myth 3: "Annuity growth is tax-free."

No. Annuities are tax-deferred. You don't pay tax while the money grows, but earnings are taxed as ordinary income when they come out. For a nonqualified annuity bought with after-tax money, the IRS says withdrawals are "allocated first to earnings (the taxable part) and then to your cost." In other words, the taxable part comes out first.

Take money out before age 59½ and the IRS generally adds a 10% additional tax on the earnings, unless an exception applies. Georgia residents do get some help: the state's retirement income exclusion counts annuity income, up to $35,000 per person at ages 62 to 64 and up to $65,000 at 65 and older, according to the Georgia Department of Revenue. Talk to a tax professional about your own return.

Myth 4: "My money is locked up for good."

Deferred annuities do have a surrender period, usually several years, when withdrawals above a set amount trigger a surrender charge. FINRA notes these periods are "usually within the first six to 10 years after the annuity was purchased."

Still, many contracts let you withdraw a portion each year without a surrender charge, often around 10% of the value, though the exact amount varies by contract. Many also waive charges for certain events like nursing home confinement or terminal illness. Never put money in an annuity that you may need during the surrender period.

Myth 5: "Annuities are only for rich people" (or "only for old people")

Annuities are not a wealth product. They are an income and protection product. Plenty of Georgia retirees use a modest fixed or fixed indexed annuity to cover a gap between Social Security and their monthly bills.

The right question isn't your net worth or age. It's whether you need guaranteed income or principal protection, and can leave the money alone during the surrender period.

Myth 6: "Annuities have no fees."

Fixed and fixed indexed annuities often have no annual fee deducted from your account, which is where this myth comes from. But "no fee" does not mean "no cost." The costs show up as:

• Surrender charges if you withdraw too much, too soon.
• Caps, spreads, and participation rates that limit how much index growth you receive. FINRA gives this example: if an index rises 12% and your cap is 7%, your return is limited to 7%.
• Rider fees for optional income or enhanced death benefits, typically a yearly percentage of the account or benefit base.
• Rate changes. FINRA warns that some contracts "allow the issuer to change the fees, participation rates and interest caps from time to time."

Myth 7: "Annuities are guaranteed, so there's no risk."

Annuity guarantees are real, but they are backed by the claims-paying ability of the issuing insurance company. They are not FDIC insured. That's why you should check the insurer's financial strength ratings before you buy. The Georgia Office of Commissioner of Insurance and Safety Fire specifically tells consumers to "check the company's credit rating."

There are other risks too: inflation can shrink the buying power of a fixed payment, surrender charges can cost you if your plans change, and locking in income at the wrong time can mean a lower payout than if you had waited.

Not sure which of these myths you've been told? I'm happy to walk through your current contract or a proposal, line by line.

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What to do instead: a simple checklist

1. Name the job. Is this money for lifetime income, principal protection, or leaving a legacy? One annuity rarely does all three well.
2. Verify the agent and the company. Use the Agent Search on the Georgia OCI website and check the insurer's ratings.
3. Read the surrender schedule and the free-withdrawal provision. Match the surrender period to money you truly won't need.
4. Ask how the agent is paid. Georgia's best-interest rule (Rule 120-2-94) requires agents to disclose their compensation and document why a recommendation fits you.
5. Get every payout and beneficiary option in writing before you pick one.
6. Use the free look. Georgia law gives you 10 days after delivery to return the contract for a full refund.

Who annuities are NOT for

An annuity is usually a poor fit if you may need the money during the surrender period, if you have no emergency fund, if you're carrying high-interest debt, or if you want full market growth and can accept full market losses.

Frequently asked questions

Are annuities taxed in Georgia?

Annuity earnings are taxable as ordinary income at the federal level. In Georgia, annuity income counts toward the retirement income exclusion, up to $35,000 at ages 62 to 64 and $65,000 at 65 and older per qualifying taxpayer, per the Georgia Department of Revenue. Check with a tax professional.

Can I change my mind after buying an annuity?

Yes, within the free-look period. The Georgia OCI notes state law gives you 10 days after actual delivery to review the contract and receive a full refund if you cancel.

Do annuities pay my spouse after I die?

They can. A joint-life payout continues payments to a surviving spouse, and most deferred contracts pay the remaining value to a named beneficiary. A "life only" payout is the exception, so choose carefully.

Is a fixed indexed annuity the same as investing in the stock market?

No. Your money is not invested in the index. The insurer credits interest based on the index's movement, subject to a floor and limits like caps or participation rates. You give up part of the upside in exchange for protection from index losses.

If you live in Georgia and want a straight answer about whether an annuity fits your plan, call (470) 470-5593 or book your free review below.

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Tai Nguyen is a licensed life insurance agent in Georgia (License #3784707, NPN 21496686). This article is for educational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your situation. Insurance and annuity guarantees are backed by the claims-paying ability of the issuing insurance company. Annuities and life insurance are not FDIC insured. Retire With Tai serves Georgia residents only.