Annuities became a popular refuge after the market crash of 2008. Investors, promised a guaranteed return, flocked to the annuity market as insurance companies ramped up their sales efforts.

While a carefully evaluated annuity can play an important role in a well-balanced retirement plan, some annuities can work against an investor’s retirement goals and offer little of the liquidity necessary for successful active money management.

We have seen some instances in which frightened investors fled to annuities and found themselves trapped by long surrender periods and guarantees they didn’t understand.

Recently, a new client asked us to review the five annuities she owned. They ranged from a simple, fixed product, to indexed annuities with income guarantees. The annuities left her unable to access her money until between 2015, for the annuity with the shortest surrender period, to 2021, for the annuity with the longest.

One of the more alluring qualities of annuities is the guaranteed growth, but those guarantees can be deceiving. For instance, in our new client’s case, she could never take a lump sum withdrawal from the growth account, which is the only account with the 8% guaranteed growth rate.

The account values of annuities grow according to the indices into which it is allocated. Extra riders like lifetime income features cost extra money up to and exceeding 90 basis points. The only way our new client could access her 8% growth was to turn on a fixed lifetime income payment stream, which is age banded. This left her with the following options:

• Access it from age 60-69 and take 5% of the value annually for life
• Access at age 70-79 and take 6%
• Access from age 80 and up, and receive 7%.

This feature is designed for investors with a larger portfolio who can justify putting a significant amount into something with these account limitations and can wait 10 years to get money out without penalty.

We’re working hard to extract this woman’s money from some of her unsuitable annuity products and place her in investment vehicles more appropriate for her age and investment goals. From there, we will actively manage her account, which will allow her more liquidity and the ability to withdraw as needed, without giving up the growth options.

We strongly suggest that, prior to purchasing any annuity, potential investors have the product reviewed by an advisor, preferably one with a fiduciary responsibility to his or her clients.