An annuity is best suited for individuals nearing or in retirement who prioritise a predictable, guaranteed income stream for life over potential high growth investments and who are risk-averse regarding market volatility. It provides peace of mind against the risk of outliving one's savings.
Clients who are active and in good health may be better candidates for an annuity as part of their portfolios. An annuity may help a client maintain their standard of living throughout retirement by providing options for a guaranteed income for life, helping ensure they won't outlive their savings.
So, if you have experience and success managing your funds on your own and can convert your assets into an income, there is no reason to buy an annuity. 2. Don't buy an annuity if you're sure you have enough money to meet your income needs during retirement (no matter how long you may live).
Limited Savings If you have limited savings, an annuity may not be the best option. Individuals with savings below $50000 are often advised against buying annuities, as they might not have enough funds to cover unexpected expenses. Having a financial cushion is critical before committing money to an annuity.
High expenses and commissions
Cost is one of the biggest drawbacks of annuities. Expenses erode the owner's payouts, especially on a variable annuity in which the value depends on the investment returns.
A $100,000 annuity can turn your savings into dependable monthly income — typically $580 to $859 per month, depending on your age, gender and payout structure. To find the best fit for your goals: Compare quotes from multiple A-rated insurers. Decide on your payout structure (single, joint, or guaranteed period).
Beware of High Surrender Charges
The most significant fee associated with annuities is often the surrender charge. This is the percentage that a consumer is charged if he or she withdraws funds early.
Fixed and indexed annuities tend to fare better in a recession than variable ones. Contract guarantees. Some guarantee minimum payouts or principal protection even if markets crash.
If you inherit a nonqualified annuity and fail to act, the IRS may impose the five-year rule. You will be required to withdraw the entire balance within five years of the original owner's death. Understand the rules, act early and talk to a financial advisor if you're not sure what to do.
Annuities are often used as a safe and effective way to guarantee income in retirement. For this reason, they may not make sense as part of a strategy for the ultra-wealthy (think those with net worths in the tens of millions or higher).
"It never makes sense for tax purposes," she said. Instead of locking money into an annuity or insurance-based investment product, Orman encouraged focusing on other strategies. She suggested continuing to invest in dividend-paying stocks, growth stocks, or value stocks.
Only 3.2% of US retirees have $1 million in retirement accounts!
The negative perception of annuities stems from drawbacks associated with these financial products and personal experiences or anecdotal evidence. Financial advisors may hate annuities because of the complex contracts. Complex annuity contracts make it hard to know if you are making the right financial choice.
The "4% rule" is based on the idea that if retirees withdraw 4% of their retirement portfolio in the first year — and adjust that amount for inflation each year thereafter — their savings will likely last for at least 30 years, even in turbulent markets.
A portfolio of stocks, bonds, mutual funds, exchange-traded funds (ETFs) and other assets offers more control than an annuity. Investors can adjust their allocations based on changing market conditions, risk tolerance and income needs.
However, their drawbacks include overwhelming complexity, fees, lack of liquidity and tax penalties for early withdrawals. You should carefully evaluate your individual financial situation and consult a fee-only financial planner to determine if an annuity is the right investment for you.
Dividend-paying stocks, high-quality corporate bonds, municipal bonds, stable value funds and other investments are low-risk but can also provide higher returns. Before choosing any investment for your retirement portfolio, speak to your financial advisor.
Latest annuity rates
The 15-year gilt yields increased by +3 basis points to 4.84% during November 2025 with providers of standard annuities decreasing rates by an average -1.07% for this month and rates may rise by +1.37% in the short term if yields remain at current levels.
Some financial advisors promote annuities because they offer tax deferral, guaranteed income, or principal protection. But while these features can support retirement planning, annuities often carry high fees and commissions that can influence recommendations.
The right time to buy
Financial advisors recommend starting annuity payments between the ages of 70 and 75. Immediate annuities: These annuities make more sense to purchase when you are near or at retirement because the payout usually starts right away.
Yep—if you want to get your hands on the money you've put into an annuity, it'll cost you. That's a big reason why we don't recommend annuities. Remember, annuities are basically an insurance product where you transfer the risk of outliving the money you've saved for retirement over to an insurance company.
In order to withdraw $1,000 each month you would need roughly $192,000. If you exceeed your life expectancy and make it to the ripe old age of 90 you would need approximately $240,000.
The so-called age 75 rule for annuities is more myth than hard-and-fast advice. While it's true that older annuity buyers often get higher monthly payments, waiting to purchase one isn't always the optimal choice.
Potentially yes, but your retirement income will possibly be around £3,000 to £4,000 per year or approximately £250 to £333 per month, not including a state pension, if you qualify.