Published April 9th, 2026

Planning for retirement income often brings annuities into focus as a valuable tool to secure steady, reliable payouts. Yet, many retirees in Omaha face challenges when navigating these contracts, sometimes making decisions that inadvertently reduce their financial stability. Annuities are designed to protect principal and reduce exposure to market fluctuations, which aligns well with the cautious approach many retirees prefer. However, without clear understanding, it's easy to fall into common pitfalls that can limit flexibility, increase costs, or undermine long-term income goals.

As someone who has guided clients through these complexities for over 27 years, I recognize the importance of making informed, thoughtful choices about annuities. In the sections ahead, I will highlight five frequent mistakes retirees encounter and share practical insights on how to avoid them, helping you build a retirement income plan that prioritizes security and peace of mind. 

Mistake 1: Misunderstanding Annuity Fees and Their Impact on Retirement Income

When I review annuity contracts, fee confusion is one of the first trouble spots I see. The numbers often look small on paper, but over a long retirement they can quietly drain income and reduce flexibility.

Most annuity fees fall into a few main categories. Each serves a purpose, but each also takes a slice of your return or limits access to your money.

Key Annuity Fees To Watch

• Surrender charges: For a set number of years, the insurer penalizes withdrawals above the free-withdrawal amount. Take out too much, too soon, and you pay a percentage penalty on what you withdraw. This is not a "gotcha" if you go in with clear expectations, but it becomes painful if you later need more cash than you planned.
• Administrative fees: These are ongoing charges for recordkeeping, statements, and basic contract maintenance. They are usually expressed as a flat dollar amount or a percentage of your contract value. On their own, they look minor; over 15 - 20 years, they reduce the growth of the account that supports your income.
• Mortality and expense (M&E) fees: Common in variable annuities, this fee compensates the insurer for guarantees and risk. It is taken as a percentage of the account value each year. Layered on top of investment subaccount expenses, it can significantly lower net returns.

How Fees Erode Income And Principal

Every dollar that goes to fees is a dollar that does not stay invested to grow or support future withdrawals. In years when markets are flat or down, percentage-based fees still come out, which can magnify losses and slow recovery. Over time, that combination can mean smaller lifetime payments or a higher risk of depleting contract value too soon.

When I build annuity-based plans, I treat fee awareness as a core part of retirement income security. I read the fee pages line by line, compare structures across insurers, and weigh each cost against the specific benefit it provides. That discipline helps avoid unsuitable annuity products with unnecessary layers of cost and keeps the focus where it belongs: predictable income, principal protection, and clear, transparent terms. 

Mistake 2: Overlooking Liquidity Needs and Withdrawal Rules

Once fees are clear, the next trouble spot I see is liquidity. Annuities are built to provide retirement income protection over time, not to serve as a checking account. When too much money is locked into contracts without a liquidity plan, even a solid annuity can create stress.

Liquidity, in this context, simply means how easily you can reach your money without penalty or delay. With an annuity, access is governed by contract rules, not just your personal needs. If those rules are unclear at the start, problems tend to surface later - usually when an unexpected bill shows up.

How Access To Annuity Funds Usually Works

Most fixed and indexed annuities include a surrender period. During these years, the insurer charges a fee if you withdraw more than a stated limit. Common features include:

• Free-withdrawal allowance: Often up to a certain percentage of the account value each year without surrender charges.
• Surrender charges: A declining percentage that applies to withdrawals above the free amount during the surrender period.
• Market value adjustment (MVA): In some contracts, an extra adjustment that can raise or lower what you receive if you exit early.

Income-focused contracts, such as immediate annuities, work differently. Once you turn a lump sum into a guaranteed payment stream, reversing that decision or taking extra principal is usually limited or not allowed.

Why Liquidity Planning Matters

Retirees often underestimate the need for accessible cash alongside long-term annuity income stability. Health events, home repairs, family support, or tax surprises tend to arrive on their own schedule, not the annuity's. If most assets sit inside contracts with strict withdrawal rules, covering those costs may require penalties or unwanted changes to the income plan.

When I design annuity strategies, I start by mapping expected cash flow and setting aside an emergency reserve outside the annuity. Then I match surrender periods, free-withdrawal features, and income start dates to that plan. That way, the annuity does what it does best - provide steady income - while other, more liquid assets stand ready for life's interruptions.

Before committing a lump sum, I encourage you to look closely at three questions: How much do I need available in the next 3 - 5 years? What true emergency fund do I have outside my annuities? And how will I handle a large, unexpected expense without disrupting my long-term retirement income protection? 

Mistake 3: Choosing Unsuitable Annuity Products for Personal Retirement Goals

Once fees and liquidity are under control, product fit becomes the next fault line. Not every annuity is built for every retirement. The wrong type may still be "safe" on paper, yet work against your actual goals.

The most common mismatch I see is between market risk and temperament. A variable annuity ties performance to investment subaccounts. Values rise and fall with markets. For someone who loses sleep during downturns or depends on that contract for core income, that volatility can undercut peace of mind and force withdrawals after losses, which locks in damage.

I see the opposite problem as well: choosing products that protect principal but leave growth potential short of what long retirements require. A contract with strong guarantees but no realistic path to keep up with inflation may feel safe now, but it risks eroding purchasing power in later years.

Timing of income is another frequent disconnect. An immediate income annuity starts payments right away and generally gives up future access to the lump sum. That can be useful for someone who needs stable income this year. For a retiree with other sources covering the next decade, a deferred income annuity that begins later often fits longevity planning better, because it concentrates guarantees in the years when other assets may be thinning out.

Product features need to line up with specific objectives: principal protection for money that cannot be lost, income guarantees for essential expenses, and payout options that reflect whether you are covering one life or two. Even choices such as lifetime-only income versus period-certain payouts have trade-offs for surviving spouses and heirs.

When I sit with Omaha retirees to review annuities, I do not start with a product. I start with a cash-flow map, risk profile, and family needs. Then I use Fortitude Financial's consultative process to sort through available annuity structures and match them deliberately to those goals. That planning-first approach reduces the chance of living with an annuity that is technically sound yet poorly suited to the retirement it is supposed to support. 

Mistake 4: Ignoring Tax Implications and Withdrawal Timing

Once product fit is addressed, taxes and timing move to the forefront. Annuities are tax-deferred, not tax-free, and the way withdrawals are handled shapes how much spendable income remains after the IRS takes its share.

With qualified annuities - funded with pre-tax dollars from IRAs or employer plans - every dollar you withdraw is generally taxable as ordinary income. These contracts are also subject to Required Minimum Distributions. Ignoring RMD rules or delaying decisions until late in the year can force larger withdrawals than you planned, pushing other income into higher brackets.

By contrast, non-qualified annuities are funded with after-tax money. In that case, only the gain portion of each withdrawal is taxable; your original principal is not taxed again. However, tax law usually treats withdrawals as "earnings first," so early or unscheduled withdrawals often pull out taxable dollars before basis. That can surprise retirees who expect each payment to be part taxable, part return of principal from day one.

Another common misunderstanding is tax deferral itself. Deferral postpones tax; it does not erase it. If growth builds for years and then large withdrawals start all at once, the sudden income spike may affect Medicare premiums, Social Security taxation, or brackets on other retirement accounts.

To avoid these common annuity errors, I coordinate withdrawal timing across IRAs, employer plans, non-qualified annuities, and other income sources. That often means:

• Smoothing withdrawals over several years instead of waiting for a single, large distribution.
• Planning RMDs early so they work with, not against, annuity income strategies.
• Sequencing which accounts to draw from first, based on tax rate, age, and survivor needs.

Thoughtful tax coordination does not eliminate the bill, but it protects retirement income by keeping more of each payment working for your long-term plan and for those who may rely on survivor benefits from annuities after you are gone. 

Mistake 5: Overlooking Survivor Benefits and Spousal Considerations

Once taxes and timing are mapped out, the next gap I often see is how an annuity handles life after one spouse dies. Survivor benefits, spousal consent rules, and estate planning details are easy to gloss over when everyone is healthy. They matter most later, when choices are no longer flexible.

Every annuity has specific rules on what happens at death. Some payout options stop when the first owner dies. Others continue income for a surviving spouse or pay a remaining value to children or other heirs. If those options are not chosen carefully at the outset, income a couple counted on together may drop sharply for the survivor.

Key decisions usually include:

• Single-life vs. joint-life income: A single-life payout often pays more today but ends at the first death. Joint-life options reduce that risk by covering two lifetimes.
• Period-certain guarantees: Some contracts promise payments for a minimum number of years, even if death occurs early, which can support heirs or dependents.
• Death benefit features: Fixed and indexed annuities may pass any remaining account value to beneficiaries, while certain income annuities provide only scheduled payments with no residual value.

Spousal consent rules add another layer. In many retirement accounts, a spouse must approve choices that reduce or remove their survivor rights. Skipping that discussion may leave a surviving spouse with less income than either of you expected.

For retirees with dependents, blended families, or charitable goals, uncoordinated annuity contracts can clash with wills and beneficiary forms. Assets may bypass the people you intended to protect or arrive in a form they cannot easily manage. When I design annuity-based income plans, I fold these survivor choices into the broader estate picture so the income that supports you today aligns with the protections your family will rely on later.

Retirement income security hinges on understanding and avoiding common pitfalls with annuities. From unrecognized fees quietly eroding your principal to insufficient liquidity that can restrict access when you need funds most, each challenge requires careful attention. Aligning the right annuity product with your personal risk tolerance and income timing is equally critical, as is managing tax implications through strategic withdrawal planning. Finally, considering how annuities handle survivor benefits ensures your spouse's and heirs' financial well-being is protected long term.

These five areas - fees, liquidity, product fit, tax timing, and survivor planning - form the foundation of a resilient annuity strategy. By educating yourself and working with a trusted advisor who prioritizes your unique retirement goals, you can build a plan that safeguards principal, reduces exposure to market volatility, and creates dependable income streams you can count on.

With more than 27 years of experience guiding Omaha retirees, I bring a steady, client-first approach to crafting annuity solutions tailored to your needs. If you want to explore how to avoid these common mistakes and strengthen your retirement income plan, I invite you to learn more or get in touch for a personalized financial assessment. Together, we can help you protect your financial future with confidence and clarity.