If you’ve ever sat across from someone selling an annuity, you’ve probably heard the pitch: guaranteed income, protection from market losses, a paycheck for life. What you may not have heard is the other side of that coin — the fees you can’t see, the terms that can change on you, and the situations where an annuity simply isn’t the right fit.
On the latest episode of the Tall Oaks Podcast, Branden DuCharme sat down with colleague Jace Austin, who spent nearly a decade writing life insurance and annuity contracts, for a refreshingly honest conversation. The goal wasn’t to bash annuities — it was to explain them clearly enough that you can decide for yourself.
As Branden put it early on: there’s no financial product that’s right for no one, and there’s no product that’s right for everyone. Annuities included.
First, What Is an Annuity — and Why Is It “Insurance”?
At its core, an annuity is about a guarantee. As Jace explained, the one thing an annuity can truly promise is future income. Think of it as a pension you buy for yourself.
A generation ago, many workers retired with a company pension — a guaranteed monthly check for life. Those are increasingly rare. An annuity steps into that gap: you hand over a lump sum (say, from a 401(k)), and in exchange the insurance company promises to pay you a set amount every month for the rest of your life, no matter how long you live. That “no matter how long you live” promise is the insurance part.
The Fees You See — and the Ones You Don’t
Here’s where the honesty kicks in. Branden’s rule of thumb: there are no free lunches in finance.
He uses a simple example. Someone tells him their credit union money market account has “no fee” and pays 2%. But if the underlying investments are earning 3.5%, that missing 1.5% is a fee — it just never shows up as a line item. As Branden says, just because it doesn’t debit out of your account doesn’t mean it isn’t real.
Annuities have both kinds. There are explicit fees, like the cost of an income rider (often around 1% per year). And there are implicit fees — the ones baked into how the product is built.
How a Fixed Index Annuity Actually Works
A popular version is the fixed index annuity, which offers a “floor” of zero (you won’t lose money when the market drops) in exchange for a limit on your upside. That limit shows up as either a cap (say, 7.5% is the most you can earn) or a participation rate (you get, say, 80% of what the index does).
Behind the scenes, the insurance company is essentially running an options strategy — buying and selling contracts on an index like the S&P 500 to create that “zero floor, capped upside” outcome. It’s not magic, and it’s not something only insurers can do. It’s a trade, with a spread built in. That spread is the implicit fee.
“They Start by Giving You Your Own Money Back”
One of the most important points in the episode: when you turn on income, the first thing the insurance company does is pay you with your own principal.
Put in $300,000 and start taking a monthly check, and your account balance ticks down — $295,000, then $290,000, and so on. Index credits might add a little back some years, but each payment is whittling the balance down. The genuine insurance value kicks in only if you live long enough to exhaust your own money — at which point the company keeps paying. The trade-off: if you pass away early, there may be little left for your beneficiaries.
The Part Most People Miss: Terms Can Change
This was the heart of Jace’s candor. After the initial contract period — often around ten years — the terms that weren’t guaranteed can get worse.
Caps that started at 6–7% can drop to 3%. Uncapped products with a “100% participation rate” can quietly reset to 10%, meaning a 20% market year credits you just 2%. Jace, who started writing these in 2016 and watched it happen, admitted he’s “not a huge fan” of income riders for exactly this reason — especially for younger buyers paying that extra 1% for decades before they ever collect.
Why does this happen? Business incentives. As Branden noted, an insurance company doesn’t owe you a fiduciary duty the way a registered investment adviser does. Getting you into a fresh contract resets the surrender period, locks your money up again, and makes the company’s cash flows more predictable.
So — Are Annuities Ever Worth It?
Yes, in the right situation. Both Branden and Jace agree the strongest use case is the true “pension” scenario — someone who wants a guaranteed, predictable income stream and values that certainty over growth and flexibility.
The guaranteed roll-up can also be useful in a narrow window: if you know you’ll retire in the next two to six years, some contracts guarantee your future income base grows by a set rate (often around 8%) until you switch it on. Branden even compares it to Social Security, which grows roughly 8% per year if you delay claiming between full retirement age and 70. The danger is drifting past that window into year ten, where roll-ups stall and costs can start eating the contract.
The Bottom Line
There’s nothing inherently good or bad about an annuity. As Jace put it, your situation is different from everyone else’s — the riders, the options, and your age all change the math.
If you already own an annuity and don’t fully understand it — especially if someone sold it to you five or ten years ago and you haven’t looked at it since — it’s worth a review. Call the person who sold it to you, or better yet, sit down with a qualified financial planner who can look at it objectively and tell you where you actually stand.
Have questions about an annuity you own, or whether one fits your retirement plan? Reach out to the team at DuCharme Wealth Management.