Annuity Complaints

Annuities are often sold as safe investments that allow people to enjoy the upside of the stock market while being protected from the next bear market. But while annuities can be good investments for some people, they generate more than their fair share of complaints as well. Understanding the possible drawbacks of annuities is perhaps the best way to avoid being taken in by a smooth-talking salesperson.

Surrender Charges

Many annuities include surrender charges that are designed to prevent investors from pulling their money out before the annuity contract is complete. Those surrender charges mean that you will have to pay a fee to get access to your own money. When choosing an annuity program, it is important to read the fine print carefully and make sure your investment is not subject to these charges.

Many annuity buyers find that their investments are loaded with high commissions up front and high ongoing fees as well. According to the Ultimate Guide to Retirement published on CNN Money, many annuities come loaded with commissions that amount to 4 percent or more of the amount you invest. So if you invest $50,000 in an annuity, you could lose up to $2,000 or more in commission charges alone. In addition, annuities often charge high fees for ongoing maintenance, often as high as 2 percent or more each year you remain in the annuity program.

According to the Ultimate Guide to Retirement, annuity holders are subject to taxes on the money they take out of their annuity programs. If those investors are under age 59.5, there is also a 10 percent tax penalty to worry about. In addition to those taxes, many annuity holders are surprised to find that the long-term capital gains built up in the sub-accounts of the program are taxed as ordinary income, rather than at the more favorable long-term capital gains rate. This can be a particular problem for high-income annuity investors.