Are annuities a good investment?

For most people, no—annuities have high fees (1-3%+ annually), surrender charges, and complexity. However, a simple fixed or SPIA annuity can make sense for retirees who want guaranteed income they can't outlive, especially if they've already maxed out 401(k) and IRA contributions.

How much does a $200,000 annuity pay per month?

A $200,000 single premium immediate annuity (SPIA) pays approximately $1,100-$1,300/month for a 65-year-old, depending on current rates and whether it includes a survivor benefit. This is a lifetime guarantee.

What is the downside of annuities?

High fees (1-3%+ annually for variable annuities), surrender charges for early withdrawal (6-10 years), limited liquidity, complexity, and lower returns than comparable market investments after fees. Fixed annuities and SPIAs have fewer downsides.

Annuities Explained: Types, Costs, and Whether They're Worth It (2026)

Annuities are insurance products that promise guaranteed income, but they come in many varieties with very different costs and benefits. Here’s a clear look at what they actually offer.

Annuity Types at a Glance

Type	How Returns Work	Guaranteed Income?	Risk	Fees	Complexity
SPIA (Immediate)	Fixed payments start immediately	Yes	Low	Low (built into rate)	Low
Fixed	Guaranteed interest rate	Yes	Low	Low	Low
Fixed Indexed	Returns linked to market index, with floor	Yes (with rider)	Low-Medium	Medium	Medium
Variable	Returns based on investment sub-accounts	Optional (with rider)	Medium-High	High (2-3%+)	High

How Much Income Annuities Provide

Single Premium Immediate Annuity (SPIA) Monthly Income

Premium Invested	Age 60	Age 65	Age 70
$100,000	$490-$540	$550-$640	$630-$750
$200,000	$980-$1,080	$1,100-$1,280	$1,260-$1,500
$300,000	$1,470-$1,620	$1,650-$1,920	$1,890-$2,250
$500,000	$2,450-$2,700	$2,750-$3,200	$3,150-$3,750

Ranges depend on current interest rates, gender, and whether any survivor benefits are included.

Fixed Annuities

Feature	Details
How it works	Insurance company guarantees a fixed interest rate for a set period
Current rates (2026)	4.5-5.5% for 3-5 year terms
Minimum investment	$5,000-$25,000
Liquidity	10% annual withdrawal typically penalty-free; surrender charges for more
Tax treatment	Tax-deferred growth; ordinary income when withdrawn
Best for	Conservative savers wanting CD-like rates with tax deferral

Fixed Annuity vs. CD

Feature	Fixed Annuity	CD
Interest rate (2026)	4.5-5.5%	4.0-5.0%
Tax on interest	Deferred until withdrawal	Taxed annually
FDIC insured	No (state guaranty funds, typically $250K)	Yes (up to $250K)
Early withdrawal penalty	Surrender charges (5-10% declining)	Lost interest (usually)
Minimum term	3-10 years	3 months-5 years
Required minimum distributions	No (unless in IRA)	N/A

Variable Annuities

Fee Structure (Why Most People Should Avoid Them)

Fee Type	Typical Amount
Mortality and expense risk charge	1.00-1.50%
Administrative fees	0.10-0.30%
Investment sub-account fees (expense ratios)	0.50-1.50%
Guaranteed income rider	0.75-1.25%
Total annual fees	2.35-4.55%

Impact of Fees on a $200,000 Investment Over 20 Years

Investment	Annual Fees	Gross Return	Net Return	Value After 20 Years
Index fund (S&P 500)	0.03%	10%	9.97%	$673,000
Variable annuity (with rider)	3.0%	10%	7.0%	$387,000
Difference				$286,000

High fees can cost you $286,000 over 20 years on a $200,000 investment.

Who Should Consider an Annuity

Candidate	Best Type	Why
Retiree wanting guaranteed income for life	SPIA	Simple, low-cost, guaranteed
Conservative saver (already maxed 401k/IRA)	Fixed annuity	Tax-deferred growth at competitive rates
Someone with pension envy	SPIA	Creates pension-like income
High earner seeking tax deferral	Fixed or indexed	Tax-deferred after maxing other accounts

Who Should Avoid Annuities

Situation	Why
Haven’t maxed 401(k) and IRA	Those are better (lower fees, possible match)
Under age 50	Long time horizon = better off in market investments
Need liquidity	Surrender charges penalize early withdrawals
Sold an annuity by a commission-based agent	Agent earns 5-8% commission—motivation is misaligned
Variable annuity marketed for tax deferral	Fees negate the tax benefit for most people

The Bottom Line

Simple fixed annuities and SPIAs can play a useful role in retirement income planning—they provide guaranteed income you can’t outlive. Variable annuities, however, are usually a poor choice due to fees of 2-4% that erode returns by hundreds of thousands over time. If you want guaranteed income, a SPIA is the simplest and cheapest option. If you want growth, low-cost index funds in tax-advantaged accounts come first. Only consider annuities after maxing out 401(k), IRA, and HSA contributions.