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A common fear among retirees is running out of money. Though inflation isn't as high as it was in previous years, the cost of living is considerably higher today than it was just five years ago, and those on a fixed income are uniquely vulnerable. And, as  and other economic hurdles loom, many people nearing retirement are eyeing as a source of income security.

An annuity is a contract that allows you to exchange a today for a guaranteed future income. They're a popular retirement tool for someone concerned about running out of money before they die, and annuities come in all different forms, including fixed, variable and indexed.

But while they can be useful, annuities can also be a complex financial tool, and it's easy to make a mistake that could derail your retirement plan. Here's what to know about the common annuity mistakes people make now.

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To help you navigate the world of annuities, we spoke with several retirement experts to find out some of the common missteps retirees make and what you can do to avoid them.

Perhaps the most common mistake retirees make with annuities is not fully , experts say. Not only are annuities complicated, but unlike many other retirement savings tools, they're also difficult (and sometimes expensive) to get out of.

"I think the biggest mistake we see with prospective clients is they often don't understand what they were sold, how they work, what the fees are, and how they benefit from the product," says Tyler End, a certified financial planner (CFP) and CEO and co-founder of Retirable. "Often, there's a sales pitch promising upside with limited or no risk that sounds great, but people don't always understand the intricacies behind the product that actually make it a bad fit for their situation."

To avoid this pitfall, End recommends working with a reputable professional, such as a CFP, who can confidently explain how the annuity works and why it may be the best option for your situation. And, the advisor you work with should deliver you a complete financial plan, not just sell you an annuity, End says. That financial plan may include , , and other savings and income vehicles, in addition to the annuity.

"If it sounds too good to be true, it probably is," End says. "We often hear from customers that their 'investment' can only go up and has no fees. Digging into the contracts reveals another story, and they are stuck with surrender charges if they want to get out. Remember, annuities are an insurance contract first and foremost."

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There are on the market, including fixed, variable, and indexed annuities, immediate and deferred annuities, qualified and nonqualified annuities, and more. When shopping for an annuity, it's critical to choose the one designed to meet your specific goal.

"Annuities aren't all built the same—some focus on income, others on principal growth," says Fradel Barber, a ChFC and CEO of The World Changers, a company focused on financial education in the insurance industry. "If someone buys an income-based annuity but expects to see their account value grow, they're going to be disappointed. That mismatch can throw off their entire retirement plan."

Barber recommends starting with your actual goal and working backward. Do you want a steady source of income? To  as long as possible? To make sure your spouse is protected if something happens to you? Once you know your goal, you can work with a professional to choose the best type of annuity to accomplish it.

An annuity is designed as a long-term investment, and you're likely to run into trouble (and ) if you hope to tap into that money early.

"It's paramount that seniors don't see their annuity as a substitute for a bank account. It is not a liquid asset where cash can be taken out whenever they need it," says Jeff Lorenzen, CEO at American Equity. "There are often hefty penalty charges for early withdrawal, and while some contracts do offer hardship provisions, accessing funds can be costly, and the situations where access is permitted will be limited."

Sure, unforeseen situations can arise where you have to withdraw money when you didn't plan on it. You still need to put safeguards in place, though, including a robust emergency fund, to minimize the chances of having to withdraw from your annuity.

Inflation is one of the greatest fears of many retirees, and for good reason. Most people retire with a fixed amount in their savings, but the , making it more likely they'll run out of money. And unfortunately, some retirees don't take inflation into account when they choose an annuity.

"Most retirees invest in fixed annuities, which pay a fixed amount, which is not inflation-adjusted," says Rami Sneineh, a licensed insurance producer and the vice president of Insurance Navy. "The payout may appear to be adequate, but in the long term, inflation may reduce its value over several years or decades."

Let's say you retired in 2010 with an annuity that provided $4,000 of income per month. Fast forward to June 2025, and you would have needed roughly $6,000 to maintain the same standard of living, according to the Bureau of Labor Statistics inflation calculator.

To protect your future self, Sneineh recommends looking for an annuity that provides a cost-of-living adjustment to ensure your buying power doesn't decline over time.

Scams often target people in financially vulnerable situations, and that includes current and soon-to-be retirees. And, in addition to all the scams on the market, you may also run into financial advisors who don't have your best interests in mind when recommending an annuity. But carefully choosing who you buy an annuity from can help weed out scams and bad actors. 

"Avoid clicking on online ads that promise that seem too good to be true," says Chris Orestis, president at The Retirement Genius. "When working with a financial advisor, make sure that they are allowed to sell annuities from multiple companies and are showing you multiple options."

An annuity can provide financial security and peace of mind for someone worried about running out of money during retirement. But with the complexity of most annuity contracts and the sheer number of options on the market, it can be far too easy to end up with a product that doesn't fit your needs.

The most important first step of buying an annuity is working with a financial professional who has your best interests in mind. From there, make sure you've explored all of your options and choose an annuity that best fits your goals. Don't commit to anything until you fully understand the product and its terms. And remember that annuities aren't right for everyone. In the end, you and your advisor might decide that a different financial product is a better fit for reaching your goals.