Which of the following is a potential disadvantage of an annuity?

The potential disadvantage of an annuity highlighted in the correct answer pertains to surrender charges for early withdrawals. Annuities often come with terms that impose significant penalties on the policyholder for withdrawing funds before a specified period, which can range from several years depending on the type of annuity. These charges can reduce the value of the investment significantly and deter individuals from accessing their funds when they need them most.

For many investors, the added protection of a surrender charge may seem like a safety net, but it can limit liquidity and flexibility. This means that in situations where cash is urgently needed, the investor could be hindered by these costs, which could lead to further financial strain.

The other options describe features of annuities that are beneficial rather than drawbacks. Guaranteed income for life is one of the main attractions of annuities, providing financial security. Protection against inflation may be relevant depending on the specific type of annuity chosen, such as those with indexed or inflation-adjusted payouts. Tax deferral on growth offers a substantial benefit, allowing the investment to grow without immediate tax implications, thus enhancing overall returns over time. These characteristics make annuities appealing for retirement planning, but they do not address the potential financial drawbacks associated with early withdrawals.