Most of these costs are not hidden; they are in the contract, the tax code or the form you signed years ago. In 2025, people 60 and older also reported $7.748 billion in fraud losses to the FBI, up 59% from 2024 (FBI IC3, 2025 IC3 Annual Report, April 2026), which is why the last step on every list is the same: slow down and check.
Products and how they are sold
1. The free lunch seminar that ends in a private appointment
Why it costs you: When regulators examined 110 firms that ran free lunch sales seminars, 57% used materials that may have been misleading or exaggerated, and 23% showed signs of unsuitable recommendations (SEC, NASAA and FINRA, September 2007).
What to do: Eat the lunch if you like, but do not book the follow-up meeting at the event. Take the handouts home and check them first. Annuity sales red flags.
2. Surrender charges and market value adjustments nobody explains
Why it costs you: A market value adjustment comes "in addition to any surrender charge that applies" and is "often negative" (SEC Investor.gov, checked October 14, 2026). In our hypothetical $300,000 contract, a 1-point rate rise cut an early withdrawal by $3,292.66 on top of a $5,310 surrender charge.
What to do: Before you sign, ask for the surrender schedule year by year and the exact amount you would get back if you needed everything in year 3. Market value adjustments explained.
3. The indexed annuity cap that quietly resets
Why it costs you: Of 99 fixed index annuities with a published minimum, 86 let the insurer lower the cap to 1.00% or less, against a median 2026 starting cap of 8.12% (RLF, FIA Guaranteed Minimum Caps, October 4, 2026).
What to do: Ask for the guaranteed minimum cap in writing, not just today's cap. Fixed index annuity pros and cons.
4. IUL illustrations that show the best case first
Why it costs you: Rules now require a second ledger at a lower crediting rate on every indexed life illustration (NAIC Actuarial Guideline 49-A, section 7, revision adopted December 11, 2025), and 57% of permanent policyholders lapse within 10 years (Gottlieb and Smetters, American Economic Review, 2021, citing LIMRA data).
What to do: Read the lower-rate and guaranteed columns first, and ask when the policy would lapse under each. How to read an IUL illustration.
Taxes and paperwork
5. Hearing about the tax after the sale
Why it costs you: Some of the best options must be set up before closing: a 1031 exchange needs the qualified intermediary in place before the sale, and the 45-day and 180-day clocks start at closing (Treas. Reg. 1.1031(k)-1, checked October 14, 2026).
What to do: Call your CPA before you sign a purchase agreement, not after the closing statement arrives. Why your CPA tells you about the tax after the sale.
6. Nobody calls about the 10-year inherited IRA rule
Why it costs you: If a parent had already started required distributions, the adult child must take yearly withdrawals in years 1 to 9 and empty the account by year 10, under final rules that apply from January 1, 2025 (IRS final regulations, July 19, 2024).
What to do: Parents: tell your children which accounts exist and where. Children: plan the withdrawals across all 10 years, not in one. The 10-year rule: the call most families never get.
7. Beneficiary forms nobody has looked at in years
Why it costs you: The form beats the will: in 2009 the Supreme Court held that a plan properly paid an ex-wife who was still named on the form (Kennedy v. Plan Administrator for DuPont, January 26, 2009).
What to do: Pull every beneficiary form once a year and after every marriage, divorce, birth or death. Does a beneficiary override a will.
8. The Medicare surcharge that shows up two years later
Why it costs you: Medicare premium surcharges (IRMAA) are generally set from your tax return two years earlier, and in 2026 they start above $218,000 of joint income (CMS, November 14, 2025).
What to do: Before a Roth conversion, a property sale or a big withdrawal, check which IRMAA line it would cross in two years. Tax preparation vs tax planning.
Deadlines, designations and fear
9. A missed required distribution
Why it costs you: Missing a required minimum distribution can cost an excise tax of 25% of the amount not withdrawn, or 10% if corrected within two years (IRS, Required Minimum Distributions FAQs, checked October 14, 2026).
What to do: Put every RMD on the calendar each January, and fix a missed one fast with Form 5329. Run your RMD number.
10. The widow's tax jump
Why it costs you: For 2026 the standard deduction is $32,200 for a married couple but $16,100 for a single filer (IRS, tax year 2026 inflation adjustments), so a surviving spouse with similar income can land in a higher bracket.
What to do: Plan Roth conversions and withdrawals while both spouses are alive. The widow's penalty, explained.
11. Alphabet-soup designations
Why it costs you: FINRA's Professional Designations database lists 264 designations by our count, and FINRA says it does not approve or endorse any of them (FINRA, checked October 14, 2026).
What to do: Ignore the letters until you know the license, the duty and the pay. Look the person up on FINRA BrokerCheck and your state insurance department. Financial designations decoded.
12. "Social Security is running out, so claim now"
Why it costs you: Under the 2026 Trustees Report, ongoing income would still cover about 83% of scheduled benefits after 2034 (Social Security Trustees, checked October 14, 2026), while claiming at 62 with a full retirement age of 67 cuts your check about 30% for life (SSA, checked October 14, 2026).
What to do: Decide your claiming age on your health, your spouse and your other savings, not on a deadline someone else gives you. Social Security is running out? A fear tactic, not a strategy.
What three of these can cost one couple
A hypothetical married couple with $1.5 million saved, using the sourced figures above. Your numbers will differ.
| Pet peeve | What happens | Cost |
|---|---|---|
| Missed RMD of $40,000 | 25% excise tax, not corrected in time (IRS) | $10,000 |
| Same RMD, corrected within two years | 10% excise tax (IRS) | $4,000 |
| Early withdrawal from a $300,000 annuity in year 2, rates up 1 point | Surrender charge plus market value adjustment (our hypothetical example) | $8,602.66 |
| Claiming Social Security at 62 instead of 67 on a $2,800 full benefit | About 30% less, every month for life (SSA) | about $840 a month |
The arithmetic: $40,000 x 25% = $10,000; $40,000 x 10% = $4,000; $5,310 + $3,292.66 = $8,602.66; $2,800 x 30% = $840. None of these require bad luck, only a missed date or an unasked question.
Red flags
- Anyone who says you must decide today.
- A free meal that ends with a private appointment to review your accounts.
- A product described only by its upside, with no surrender schedule or fees in the same sentence.
- An illustration with only one column of numbers.
- Letters after a name that you cannot look up with a regulator.
- A deadline built on fear, such as Social Security running out.
- Advice to move an IRA into a product for tax deferral it already has.
- A replacement that starts a new surrender period.
- Nobody asking about your beneficiary forms.
- Nobody asking what your Medicare premium will be in two years.
Questions to ask before you sign
- How are you paid on this recommendation, in dollars?
- Are you a fiduciary at all times, for all my accounts, in writing?
- What would I get back if I needed all of this money in year 3?
- What is the guaranteed minimum, not just today's rate?
- What does the lower-rate or guaranteed column show?
- How does this change my taxes this year and my Medicare premium in two years?
- Who are my beneficiaries on every account, and when were they last checked?
- What has to be set up before I sign a sale contract?
- When is each of my required distributions due?
- What happens to my spouse's taxes if one of us dies?
Read This Before You Sign
A one-page checklist: the red flags in annuity and indexed universal life (IUL) sales, and the questions to ask before you sign anything. Start with the 12 questions that would have prevented every item on this list. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- SEC, NASAA and FINRA: Protecting Senior Investors, Free Lunch Sales Seminars (September 2007)
- SEC Investor.gov: Annuities (checked October 14, 2026)
- IRS: Retirement plan and IRA required minimum distributions FAQs (checked October 14, 2026)
- IRS: Tax inflation adjustments for tax year 2026 (checked October 14, 2026)
- Social Security Trustees: A Summary of the 2026 Annual Reports (checked October 14, 2026)
- SSA: Starting Your Retirement Benefits Early (checked October 14, 2026)
- FINRA: Professional Designations (checked October 14, 2026)
- Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 555 U.S. 285 (January 26, 2009)
- FBI IC3: 2025 IC3 Annual Report (April 2026)
- RLF: FIA Guaranteed Minimum Caps (October 4, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.