All about annuities
Busted: Tackling four common annuity myths.
In a world of seemingly limitless financial choices, annuities can seem shrouded in myth and misconception. So, what’s the real story?
Do a quick search for annuities and you might come away with more questions than answers.
For perspective, the first annuities date back to the Roman Empire. And retirement annuities have been an established part of the American financial system for centuries—the first annuity in the U.S. was issued more than 250 years ago.1 As with many other financial products, perceptions have shifted over time. Today, we’ll dive into some common misconceptions about retirement annuities and clarify the potentially valuable role they can play in any retirement plan.
MYTH: Annuities are not trustworthy
FACT: Many reputable annuity products are offered by respected providers
For some, the term “annuity” conjures up images of salespeople pushing complex contracts with high fees. While this may be true of some annuities, right now millions of retirees across America benefit from retirement checks, provided through reputable annuity providers. In fact, annuities are increasing in popularity—2022 and 2023 both saw record-breaking annuity sales.2 TIAA alone serves 4.7 million individual annuity customers across the U.S.3
Annuities—fixed and variable alike—are contracts with insurance companies. As with any financial decision, you should carefully consider the terms of your contract and the provider itself before you move forward.
If your employer offers an annuity in your benefits, it’s their responsibility to make sure it’s in the best interest of you, the employee. You can check the grades given by insurance company rating agencies to view an issuer’s overall financial strength.
Annuities are increasing in popularity— 2022 and 2023 both saw record-breaking annuity sales.2
MYTH: An annuity isn’t useful if you already have retirement savings
FACT: Retirement annuities can help you round out your retirement financial plan
Fewer people than a generation ago have access to a traditional pension, and workplace retirement savings accounts like 403(b)s and 401(k)s were never designed to entirely replace your paychecks. Even if you have been a diligent saver, you might benefit from the certainty of the guaranteed retirement checks for life that annuities provide.
This is especially true because, on average, Social Security only replaces about 40% of a retiree’s pre-retirement income.4
A fixed annuity, like TIAA Traditional,* and the guaranteed income it can provide can open new strategies that help your savings last.5 One popular retirement spending strategy is to rely on annuity retirement checks and Social Security to cover your living expenses, then use your savings and investments for discretionary retirement spending. Even if the market goes down, you'd still have cash to pay the bills.
*TIAA Traditional is issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY.
MYTH: Annuities have very high fees
FACT: Annuities are offered at a range of costs, and some can even be tailored to you
The first annuities were pretty simple but, with time, the number of annuity types has grown substantially. With complexity comes higher fees (and often sales commissions). But high fees aren't a characteristic of all annuities, as some critics may make it seem.
TIAA offers some of the lowest-cost fixed and variable options on the market today.5
MYTH: If I die, my money is gone and my family won't get any benefit
FACT: Many annuities can be set to benefit your loved ones
Converting a portion of your savings into annuity payments comes with a lot of options, including how long you want them to be guaranteed. Today it's more common for people to purchase annuity products that guarantee monthly retirement checks for 10 or 20 years and, in exchange for lower payments, continue to pay a spouse or children if you die. TIAA offers products that do just this, and any annuity provider will be able to explain these features and options.
It is true that with a “pure life” annuity your benefits may end once you pass away. But you’re unlikely to be in that situation without opting in.
There’s also the matter of the rest of your savings: Regular retirement checks may allow you to spend less from your other assets, like cash savings or a 401(k)—potentially growing the legacy you can leave for your loved ones.
Keep learning
How to diversify your retirement portfolio.
What is diversification, and why does it matter for retirement?
Lifetime income
We’ve created a brand-new way to learn about lifetime income.
This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.
Investment products may be subject to market and other risk factors. See the applicable product literature or visit tiaa.org for details.
All guarantees are based on TIAA's claims-paying ability. TIAA Traditional is a guaranteed insurance contract and not an investment for federal securities law purposes.
TIAA Traditional is a fixed annuity product issued through these contracts by Teachers Insurance and Annuity Association of America (TIAA), 730 Third Avenue, New York, NY, 10017: Form series including but not limited to: 1000.24; G-1000.4; IGRS-01-84-ACC; IGRSP-01-84-ACC; 6008.8. Not all contracts are available in all states or currently issued.
Converting some or all of your savings to income benefits (referred to as "annuitization") is a permanent decision. Once income benefit payments have begun, you are unable to change to another option.
- Source: National Bureau of Economic Research,
The History of Annuities in the United States - Source: LIMRA: Record-High 2023 Annuity Sales Driven by Extraordinary Growth in Independent Distribution
- As of June 30, 2023
- Source: SSA,
Retirement Ready Fact Sheet - Source: Morningstar Direct, December 31, 2023. The CREF variable annuity accounts have expense ratios that are in the bottom decile (or 100% below median) of their respective Morningstar variable annuity sub-account category. Our variable annuity accounts are subject to various fees and expenses, including but not limited to management, administrative, and distribution fees; our variable annuity products have an additional mortality and expense risk charge. Please see CREF prospectus for other fees or expenses.