Let's be direct: annuities aren't for everyone. They're not a universal retirement solution. But for specific situations and specific goals, they can be incredibly valuable.
This isn't a sales pitch. It's an honest decision framework to help you determine if an annuity makes sense for your life.
"Will I outlive my money?"
If this question keeps you up at night—if you worry about running out of savings at 85 or 90—then annuities are worth serious consideration. They're specifically designed to solve this problem.
If you're confident in your portfolio's longevity (maybe you have a large nest egg, a pension, or rental income), you probably don't need an annuity. The rest of this article won't change your mind, and that's fine.
But if you're somewhere in the middle—uncertain about market returns, worried about sequence-of-returns risk, or just wanting more predictability—keep reading.
Your situation:
Best annuity type: Immediate annuity (SPIA) or Deferred income annuity (DIA)
Why it works: These products convert a lump sum into guaranteed monthly payments for life—just like a pension. You can structure it to cover essential expenses (housing, food, utilities), so you never worry about the basics.
Example allocation: Use 20-30% of your retirement savings for a SPIA to cover baseline expenses. Keep the other 70-80% invested in stocks/bonds for growth and flexibility.
Your situation:
Best annuity type: Deferred income annuity (DIA) starting at age 65-70
Why it works: DIAs are incredibly efficient for future income. You pay a premium today, and income starts 5-15 years later. This creates a guaranteed income "floor" in your later retirement years. It also lets you spend down other assets more aggressively early in retirement, knowing future income is secured.
Example strategy: At age 60, invest $100,000 in a DIA that starts payments at age 70. You might receive $1,200/month for life starting at 70—a 14.4% annual payout rate because of the 10-year deferral.
Your situation:
Best annuity type: Fixed index annuity (FIA) or RILA
Why it works: Annuities offer unlimited tax-deferred growth (no contribution limits like 401(k)s). If you're a high earner who's exhausted other options, an FIA or RILA lets you continue deferring taxes on investment gains.
Important caveat: Withdrawals are taxed as ordinary income (not capital gains), so this strategy works best if you expect to be in a lower tax bracket in retirement.
Your situation:
Best annuity type: MYGA or FIA
Why it works: MYGAs lock in a rate (like a CD), so you know exactly what you'll earn. FIAs let you participate in market gains but with zero downside—if the S&P 500 drops 30%, you get 0% that year (not -30%). This behavioral protection can actually improve long-term outcomes if it keeps you from panic selling.
Real talk: If volatility causes you to make bad decisions, the cost of an annuity (lower returns) might be cheaper than the cost of poor timing.
Your situation:
Best annuity type: Deferred income annuity (DIA) starting at age 80-85
Why it works: This is pure longevity insurance. You pay a modest premium (say, $50,000) at age 65, and you get $2,000/month starting at age 85—but only if you're alive. If you die at 80, you get nothing. That's the trade-off. But if you live to 95, you'll have received $240,000 (480% return).
Why this is smart: Most people underinsure against longevity because it feels like a "bad deal" if you die early. But that's exactly why it's efficient—you're pooling risk with others and getting mortality credits from those who don't make it.
Age matters significantly when evaluating annuities. Here's the reality:
Before you even consider an annuity, you must have these boxes checked:
Rule of Thumb: If you wouldn't consider buying disability insurance or life insurance, you probably shouldn't consider an annuity. They're all about transferring risk for a fee. If you're risk-tolerant and financially secure, you likely don't need them.
Mike is 62 with the following:
His concern: He wants to retire at 65, but Social Security doesn't start until 67. He's worried about market volatility in those early years and wants more income certainty.
His solution:
Why this works: Mike has balanced guaranteed income with investment growth. He's not putting all his eggs in one basket. He maintains flexibility with $800K while securing peace of mind with guaranteed income.
Even if some of the above scenarios apply to you, there are situations where annuities are still wrong. We cover this extensively in When to Avoid Buying an Annuity, but here's the short version:
Ask yourself these three questions:
If after honest reflection you still want guarantees—and you're in the right age range with the right financial foundation—then annuities are worth exploring.
Next, read When to Avoid Buying an Annuity to see the other side of the coin.