The Reality of “8%” and “10%” Annuity Guarantees

We see it everywhere: 8% guarantees, 10% income for life. When people call in, they often tell us things like, “I talked to someone who said 8% was the floor—the minimum I can earn,” or “This other place showed me how I can get 10% cash flow for life on my assets.”

And while those claims can be true, they often leave out some very important details.

What Those Numbers Really Mean

Let’s start with the 10% income for life claim. Typically, that income rate, which is called the payout factor, is only available once you reach a much older age—often 80 or later.

Now let’s talk about the 8% guarantee. This is where confusion really sets in. That 8%, called a “roll up rate”, usually applies to a separate number inside the annuity, not to money you can withdraw as a lump sum. It’s only available if you take income under the terms of the income rider. If you cancel the annuity, you don’t get that 8%.

This distinction matters.

Income Roll-Ups vs. Real Account Value

When companies advertise annuities with 7%, 8%, or 10% guarantees, many people assume their money is growing at that rate. Most of the time, that’s not what’s happening.

That percentage usually applies to an income calculation value—a number that grows on paper and is used to determine how much income you can receive in the future. It’s not the same as your actual account balance, and you generally can’t withdraw it as cash.

There’s nothing wrong with this—if you understand it. The problem arises when people think, “If I leave this here for 10 years, I can walk away with that guaranteed amount.” You can’t. What you can do is turn that number into a guaranteed future income stream.

A Simple Example¹

Let’s say someone puts $100,000 into an annuity and leaves it in deferral for 10 years. That $100,000 might grow into an income base of $200,000 used to calculate lifetime income.

But there’s another key factor: the payout percentage.

Payout rates depend on the insurance company and your age. At age 60, a payout might start around 5%. Some companies increase that percentage over time—annually or every five years.

So while it’s tempting to say $200,000 × 5% = $10,000 per year, it doesn’t always work exactly that way. Still, it gives you a baseline. You can know today what you put in and what the minimum guaranteed income will be when you turn it on in the future.

That future income is the contractual guarantee.

The Real Rate of Return

Here’s what often surprises people: the actual yield on the annuity—the money that’s truly yours if you walk away—is usually much lower than the roll-up rate.

In many cases, that real return might be 2–3%. So instead of walking away with $200,000 after 10 years, you might have $130,000 or $140,000 once the surrender period ends.

Again, this doesn’t make annuities bad products. It just means they’re designed for a specific purpose.

Where These Annuities Can Work Well

These products can be very effective for someone who wants to design a guaranteed income stream for retirement—income they know they’ll want in the future. There’s flexibility built in, and you can change your mind, but the real strength of these annuities is income, not necessarily lump-sum growth.

Unfortunately, we regularly hear from people who feel they were misled because they didn’t fully understand how the product worked.

That’s why we insist on full disclosure upfront. Clear facts. No hype. You decide whether it fits your situation.

If annuities were explained with more transparency and common sense, they could be a very good tool for many people for what they’re designed to do—and they may fit well into many retirement portfolios.

If you found this helpful and want guidance on how annuities work and how they may benefit your strategy, we’d love to help. Schedule a strategy session with The Annuity Guys to build an income approach tailored to your goals—no pressure, no strings attached, just honest, unbiased guidance to help you confidently make the right decision for your retirement.

Thanks for reading, and here’s to building a retirement plan you can feel confident about.

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¹ Hypothetical example shown for illustrative purposes only, is not guaranteed, and does not reflect any specific annuity product. Actual results will vary by the carrier and product chosen.

Advisory Services offered through CreativeOne Securities, LLC an Investment Advisor. Annuity Guys and CreativeOne Securities, LLC are not affiliated. Licensed Insurance Professionals.

Annuity guarantees are backed by the financial strength of the issuing company, and for variable annuities, do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions. Annuities are not bank or FDIC insured. Annuities contain limitations including withdrawal charges, fees, limits on credited interest and a market value adjustment which may affect contract values. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Annuity withdrawals are subject to ordinary income taxes, including a potential 10% IRS penalty if taken before age 59-1/2.

Investment advisory services are provided in accordance with a fiduciary duty of care and loyalty that includes putting your interests first and disclosing conflicts. Insurance services have a best interest standard which requires recommendations to be in your best interest. Advisors may receive commission for the sale of insurance and annuity products.

Investment advisory services are provided in accordance with a fiduciary duty of care and loyalty that includes putting your interests first and disclosing conflicts. Insurance services have a best interest standard which requires recommendations to be in your best interest. Advisors may receive commission for the sale of insurance and annuity products. Additional details including potential conflicts of interest are available in our firm's ADV Part 2A and Form CRS (for advisory services) and the Insurance Agent Disclosure for Annuities form (for annuity recommendations).