He Put $800,000 Into an Annuity at 65 After Being Told It Was Safe. Then He Found the Surrender Schedule.

The salesperson said he could not lose a dime. Then a roof repair and a wedding pushed him to the one page he had not studied, where the true cost of getting his own money back was spelled out.

Picture a 65-year-old former operations manager sitting across from a salesperson who makes one promise sound simple: put the money into this annuity and you cannot lose a dime. He transfers $800,000 of after-tax savings into a deferred annuity. A year later, he needs cash for a new roof and his daughter’s wedding. When he opens the contract, he finds the page he skipped over: the surrender schedule.

People in his age group hold much of the money these products are designed to attract. Households ages 55 to 69 held 41% of household-sector net worth and 49.5% of defined contribution pension entitlements and annuities in the latest Federal Reserve data cited in the article.

What the “No Loss” Pitch Really Means

The promise is narrower than it sounds. In a fixed or fixed indexed annuity, the guarantee of principal and credited interest depends on the insurance company’s claims-paying ability, and no federal agency is backing it. If an insurer fails, state guaranty associations provide a safety net. Coverage limits differ by state, and each association sets its own caps and rules.

The sales pitch also leaves out access to the money. “Can’t lose money” generally means market downturns will not reduce the contract value. It does not say what happens if the owner needs to use that value early.

How a Surrender Schedule Works

A surrender charge is a fee the insurer takes when the owner cancels the contract, or withdraws more than allowed, during the surrender period. Insurers mainly use it to recover the commission paid to the selling agent and other upfront costs. The charge usually begins at its highest point in the first year and then declines each year until it reaches zero.

Here is a hypothetical schedule, for example only:

Under this hypothetical schedule, cashing out the entire contract in the first year would cost $56,000. In other words, “can’t lose money” is only true if the money stays put.

Free Withdrawals Can Reduce the Pain

Most deferred annuities include a free-withdrawal feature that lets the owner take a set portion of the contract value each year without triggering a surrender charge. In the hypothetical example, a 10% annual allowance would let him withdraw $80,000 in the first year with no charge. If he surrendered the rest that year, the year-one charge would apply to the remaining balance, costing $50,400. Many contracts also waive surrender charges for situations such as terminal illness or nursing home confinement. Some contracts also include a market value adjustment, which can increase or reduce the surrender value as interest rates move.

Taxes Come on Top of the Fee

Because he used after-tax money, the contract is nonqualified. Withdrawals made before the annuity starting date come out of earnings first. Under tax law, a withdrawal is treated as income up to the amount by which the cash value, determined without regard to any surrender charge, exceeds the investor’s basis in the contract. Distributions from a nonqualified annuity also count as net investment income for the Net Investment Income Tax, according to IRS Publication 939. At 65, he is beyond the additional tax on early distributions, which applies before age 59½.

A large taxable withdrawal can also increase Medicare costs. In the latest figures cited, single filers with income above $109,000 and joint filers above $218,000 move past the standard Part B premium of $202.90 a month.

Three Ways to Proceed Once You Are Already Locked In

• Wait out the schedule. The charge falls each year and eventually reaches zero. Any cash need in the meantime has to come from other funds.
• Stay within the free-withdrawal limit. Spreading large expenses across several contract years can avoid charges entirely.
• Use a tax-free exchange. The tax code says no gain or loss is recognized on the exchange of “an annuity contract for an annuity contract.” The exchange avoids tax, but the old insurer can still impose its surrender charge, and the new contract usually starts a fresh surrender period. If the money came from a 401(k) rollover, it would sit inside an IRA and follow IRA transfer rules instead.

How the Contract Compares With Simpler Choices

The 10-year Treasury yielded 4.90% on the cited date, and the national average 12-month CD paid 1.76% APY as of the cited month. A Treasury can be sold before maturity at market price with no surrender charge. Bank CDs come with early-withdrawal penalties set by the bank. An annuity adds tax deferral on nonqualified savings and the option to turn the balance into lifetime income. Compare each offer’s rate with these benchmarks over the same time frame, and read the full contract terms alongside the headline rate.

Who This Product Fits — and Who It Can Trap

A deferred annuity with a surrender schedule usually fits someone who:

• Will not need the money for the full surrender period
• Keeps a separate cash reserve for large expenses
• Wants tax deferral and principal protection backed by an insurer’s claims-paying ability

It can trap someone who:

• Expects major expenses in the first few contract years
• Places most of their liquid net worth into one contract
• Already has guaranteed income covering essential bills

For context, the average retired worker’s Social Security benefit is $2,071 a month after the 2.8% 2026 COLA cited in the article.

Before signing, read the surrender schedule, the free-withdrawal percentage, any market value adjustment, the insurer’s financial strength, and your state’s guaranty association limits. Those pages determine whether “can’t lose money” ends up meaning that for you.