I Want to Buy an Annuity, but I'm Scared I'll Get Ripped Off. Should I Get One Anyway?
An annuity is a way to achieve lifetime income in retirement, but you need to understand how this product works before making a purchase.


Are you thinking about buying an annuity, but you’re worried you’ll make a mistake and lose money? Then you’re not alone. Annuities are complex, costly, and after a short window, are permanent.
Plus, not every annuity seller has your best interest at heart. Unscrupulous salespeople can charge you extra fees or sell you products that aren’t in your best interest, so it's understandable if you are worried.
But that doesn’t mean you should avoid annuities altogether. For certain individuals, annuities can be a way to get guaranteed income in retirement. It's one of the main reasons annuity sales topped $100 billion in the first quarter of 2025.

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With that in mind, here is a look at when it makes sense to buy an annuity and how you can prevent yourself from getting ripped off if you do decide to purchase some guaranteed income via an annuity.
Annuity purchases: when it makes sense
If you have access to an annuity through your employer-sponsored retirement plan, the decision is easier. The product is already vetted through your company’s plan sponsor, so you don’t have to worry about shopping around.
Timothy Pitney, head of lifetime income default sales at TIAA, says it's typically cheaper than purchasing it in the retail market. “They don’t come with a lock-up or a commission that you find in retail,” says Pitney. “There’s fiduciary oversight. Often, these plans have consultants helping them. They tend to have much higher quality products than what you find in the retail space.” While that segment is growing, not every 401(k) or 403(b) plan offers it.
If you don’t have access to one through your 401(k) or 403 (b), ask yourself why you want to purchase an annuity in the first place before you begin your search, said Douglas Ornstein, director, wealth management coach at TIAA Wealth Management.
“You want to think about annuities as a retirement instrument primarily as opposed to purely an investment instrument,” says Ornstein. “You want something low-cost. It’s not a place to get a bunch of bells and whistles," or expect a big return on your investment.
Annuities make the most sense for people who want guaranteed income in retirement and are worried they will run out of money during their golden years. With an annuity, you enter into a contract with an insurance company and make payments over a specified period. That money is invested and paid out to you at a later date, either as a lump sum, monthly, or annual payments over your lifetime.
Annuities are also well-suited to individuals who want to play it safe but want a better return than bank CDs. Fixed annuities tend to outperform bank CDs because they are held longer, giving the insurance company more time to invest and grow the money.
Annuities can also make sense for people who want to supplement their Social Security benefits as part of their retirement, or as a bridge until they can claim Social Security if they retire early, says Ornstein. Annuities can also be used to pay for the aging process or long-term care costs, he says.
“Sometimes you’ll hear of people buying annuities because they are scared about the markets. That may be a good reason if you have a diversified, holistic financial plan in the context of a broader goal,” he says.
How to prevent yourself from getting ripped off
Once you understand why you are purchasing an annuity, you have to ensure you’re purchasing one without getting ripped off. That’s where education comes in. The phrase knowledge is power couldn’t be truer when it comes to shopping for a retail annuity. Understanding the types of annuities and all the costs is key.
Types of annuities
There are several types of annuities, but the main ones include:
-Fixed annuity: Payments are made monthly for the same amount. With a fixed annuity, you know exactly how much you’ll receive monthly.
-Variable annuity: The payouts are tied to the rise and fall of the underlying investment.
-Indexed annuity: The payouts are tied to the performance of an index such as the S&P 500.
-Immediate annuity: Payments are typically made as a lump sum. You then begin receiving payments in 12 months or less. An immediate annuity can be fixed or variable.
-Income for life annuity: Payouts are for life, no matter what age you live to. The size of the payments depends on the account size and the life expectancy of the person holding the annuity. This type of annuity can be fixed or variable.
Annuity costs and fees
As for annuity costs, be mindful of these:
-Commissions: This is the fee that goes to the agent you work with to purchase an annuity. The commission varies based on the type of annuity and its complexity. The more complex, the higher the commission will be. It can range from 1% to 8%, according to Annuity.org.
-Administrative fees: These are the fees that cover the cost of managing the annuity, recordkeeping, and processing transactions, in addition to other administrative costs. This fee is typically under 0.3% of the value of the annuity each year.
-Surrender charge: A penalty that’s deducted from the account value if money is withdrawn from the annuity prematurely. The surrender charge can vary based on the insurance company, the age of the annuity, and the amount withdrawn.
-Rider: These are additional benefits you can add to your annuity for a fee. Common types of annuity riders include living benefits and death benefits.
Consider professional help from a financial adviser
When shopping for annuities, Ornstein encourages clients to ask advisers and salespeople what conflicts of interest they have, how they are compensated, and whether or not the adviser is a fiduciary. A fiduciary doesn’t get paid by the insurance provider and therefore doesn’t have any incentive to recommend one annuity over another. An annuity broker may. Therefore, it's important to find this out before purchasing an annuity.
While you can purchase an annuity via a marketplace, annuities should be integrated into your broader financial plan. Therefore, working with a financial adviser may be your best option.
“While an annuity specialist may have expertise in annuities, that might not be the same person who can take a holistic look at an individual’s short, medium, and long-term goals,” says Ornstein. “Many things go into a comprehensive financial plan. I would encourage clients to talk to a holistic financial adviser first and see if an annuity is right for them.”
Don’t lose sight of the goal
At the end of the day, when considering if you should purchase an annuity, don’t lose sight of the end goal: managing risk in retirement. The key is to have a diversified income stream that addresses the four risks you’ll face: market risk, longevity risk, cognitive risk and annuity risk.
“That doesn’t mean put all your money into an annuity,” says Ornstein. “It means having a broad, diversified strategy for taking income. An annuity should be a strong consideration.” But it might not be the be-all end-all.
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Donna Fuscaldo is the retirement writer at Kiplinger.com. A writer and editor focused on retirement savings, planning, travel and lifestyle, Donna brings over two decades of experience working with publications including AARP, The Wall Street Journal, Forbes, Investopedia and HerMoney.
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