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Should I Consider An Annuity For Pure Market Growth?

Stan The Annuity Man

Question: Should I consider an annuity for pure market growth?  Can I get all of the upside with no downside like I hear on local radio ads?  Mary from San Diego, CA.

Answer: Mary, this is a home run when it comes to questions!  A common myth that is promoted by too many annuity agents is that annuities are growth products.  Let me say, unequivocally, that they are not!  Annuities should never be considered for pure market growth.

By the way, most agents will violently disagree with me on this because people that sell annuities love to sell the dream.  I live in “Annuity Realityville.”  Annuities should be owned for what they will do (i.e. the contractual guarantees) not what they might do.  The “might do” is the hypothetical and theoretical returns that agents and advisors love to show you.  I call that “juicing” the numbers.

Let’s look at the two types of annuities that are most often promoted (incorrectly) for growth: variable annuities & indexed annuities.

Indexed Annuities

Fixed index annuities were originally designed to compete with bank CDs, not the market.  We could end the discussion right there, but let me pile on a little more.  Indexed annuities provide potential growth via a call option on an index, typically the S&P 500.  There is a cap on the upside with full protection of the downside, and the S&P 500 option return does not include dividends.  A recent 5 year study of all indexed annuity returns showed the average annual return to be 3.27%.  The 10 year study reveals that number to be around 4%.  Enough said!  Indexed annuities are good products when you understand the realistic return expectations.  So if an agent says that they have an indexed annuity with unlimited upside, or a very high number, they don’t have a clue what they are talking about.

Variable Annuities

Here’s where the dream is really sold.  Variable annuities have what’s called separate accounts (i.e. mutual funds) that provide supposed unlimited upside potential.  The reality is that there are limitations on fund choices and the average annual fees on deferred variable annuities is over 3%.  That means your investments have to make 3% to break even!  Good luck with that one when you have limited fund choices.

The only possible exception to the market growth dream is a no load variable annuity with Jefferson National ( that has over 380 fund choices, has a $20 per month total fee, and is 100% liquid day one.  Agents can’t sell you this which is a good thing, and you have to buy it direct or have a fee based advisor manage it for you if you don’t want to manage it yourself.

So if you really want market growth, annuities are really not the solution.  Agents that argue otherwise are just not being honest with you, or themselves.

*If you have a question for Stan The Annuity Man, please send your question to  He will answer all questions directly, and might include yours in his next Annuity123 “Ask Stan The Annuity Man” blog.

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About the Author:

Stan The Annuity Man is a nationally recognized annuity expert and annuity critic, and has been called the national consumer advocate for annuities… and a walking middle finger of annuity truth.  He is a weekly RetireMentor columnist for The Wall Street Journal’s, and is the exclusive annuity contributor for  His highly acclaimed book, The Annuity Stanifesto, is a top seller in its category, and is known as the go to resource for all things annuity.

Stan The Annuity Man has clients nationwide, and is considered one of the top independent annuity agents in the country.  You can learn more at


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1 Comment

  • Paul Fund says:

    Stan I have thoroughly enjoyed reading this. I read your blog ( regularly and I have begun following your writing. They have always been good. Thanks.

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