Annuities are not inherently good or bad. They are tools designed to solve specific retirement income problems. The question is whether your situation matches the problem the tool is built to solve.
7 Reasons to Buy an Annuity
1. You Want Guaranteed Income You Cannot Outlive
This is the defining advantage of annuities. A Social Security benefit pays for life. A pension pays for life. A SPIA or a FIA with a GLWB rider extends that same guarantee to your private savings.
If your essential expenses exceed Social Security and any pension you have, an annuity can fill the gap with certainty that an investment portfolio cannot replicate.
Most relevant annuity types: SPIA, DIA, FIA with GLWB
2. You Have No Pension
Workers without a defined-benefit pension lack any private guaranteed income beyond Social Security. An immediate annuity (SPIA) effectively creates a private pension: one lump sum payment in exchange for a monthly check for life.
Example: A 65-year-old male with no pension converts $300,000 into a SPIA, receiving ~$2,010/month ($24,120/year) guaranteed for life. Combined with $2,200/month in Social Security, that is $4,210/month before drawing from any other savings.
3. You Are Concerned About Longevity Risk
People with long-lived family members face a risk most retirement calculators underestimate. If you live to 92 and planned for 85, seven extra years of withdrawals can deplete a portfolio.
A QLAC purchased at 65 for $100,000 can generate $2,000–$3,000+/month beginning at 85 — covering precisely the years most vulnerable to outliving savings, at a fraction of the cost of insuring from day one.
4. You Want Tax-Deferred Growth Beyond IRA and 401(k) Limits
IRAs ($7,000/year) and 401(k)s ($23,500/year) cap how much you can shelter from taxes. A non-qualified annuity has no contribution limit. High earners who have maxed all qualified accounts can still defer taxes on additional savings through an annuity.
The tax deferral compounds meaningfully over 10–20 years, and there are no RMDs on non-qualified annuities.
5. You Want Principal Protection (Fixed or FIA)
A fixed or fixed index annuity guarantees you will not lose principal due to market declines. For retirement savers within 5 years of retirement who cannot afford a significant portfolio drawdown, this floor has real value.
A FIA participates in upside (within a cap or participation rate) while guaranteeing 0% floor — you never lose money due to index performance.
6. You Want to Simplify Retirement Income
An annuity eliminates the need to manage withdrawal rates, asset allocation, and sequence-of-returns risk for the portion of income it covers. The insurer manages those risks; you receive a check.
For retirees who do not want to manage a portfolio or who fear making investment mistakes in their 80s, converting a portion of savings to guaranteed income reduces the decision burden.
7. You Want a Death Benefit for Heirs
Variable annuities with enhanced death benefit riders can guarantee heirs receive at least the original premium (or a stepped-up value) regardless of market performance. For estate planning purposes, this can provide certainty that an investment account does not.
Cost consideration: Compare this to term or whole life insurance — often a cheaper way to achieve the same death benefit goal.
When NOT to Buy an Annuity
| Situation | Why annuity is a poor fit |
|---|---|
| You have a pension + large Social Security | Already have ample guaranteed income — additional annuity is redundant |
| You need liquidity within 7–10 years | Surrender charges trap your principal |
| You are in poor health | May not live long enough to recoup the premium in a lifetime income annuity |
| You have not maxed IRA and 401(k) | IRA/401(k) offer tax advantages with much lower fees |
| You want inflation protection | Fixed annuities have fixed payments that erode in real terms over decades |
| You want investment growth | A diversified portfolio outperforms most annuities over 20+ year horizons |
| You have dependents who need the lump sum | Life-only SPIA eliminates principal at death |
The strongest case for annuities is made here and expanded across the annuities hub. Start the purchase process with how to buy an annuity, and see which products are most popular with popular annuities for retirees.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy