If you’re researching annuities, you’re probably asking a simple but important question:
“Does an annuity actually make sense for my situation?”
Sometimes the answer is yes.
Other times, it’s no — at least not right now.
In this guide, we’ll break down when annuities make sense, when they don’t, and how to think about them the right way.
Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!)
Tip: See how much an annuity could pay you using our annuity calculator
Why Annuities Are So Confusing for Retirees
Annuities are often pitched as either:
- “The best thing ever”
- Or “the worst financial product on Earth”
The truth?
They’re tools — and tools only work when used correctly.
An annuity can be powerful for guarantees and income, but it’s not designed to solve every retirement problem.
When an Annuity Does Make Sense
1. You Want Guaranteed Lifetime Income
This is where annuities shine.
If your goal is to create a pension-like paycheck you can’t outlive, annuities are hard to beat.
They’re especially useful when:
- You’re close to retirement
- You don’t want to rely on the stock market for income
- You value predictability over volatility
💡 Pro Tip: Think of an annuity as replacing a paycheck — not as an investment competing with stocks.
👉 Want to see what kind of income an annuity could generate for you? Schedule a call and we’ll run the numbers.
2. You’re Willing to Trade Liquidity for Guarantees
Annuities do lock up money — at least partially.
Most contracts:
- Have surrender periods
- Allow limited free withdrawals (often ~10% per year)
- Penalize early or excessive withdrawals
Because of this, annuities work best when:
- You already have emergency savings
- You don’t need full access to every dollar
Rule of thumb: Most people allocate 30%–50% of liquid assets to annuities.
Some carriers allow more — but only when income and expenses support it.
👉 Unsure how much liquidity you should keep? Let’s review it together.
3. You Separate Income Assets From Legacy Assets
This is a big one.
If you want:
- Maximum income → use annuities
- Growth or inheritance → use other assets
Trying to force one account to do everything usually leads to disappointment.
💡 Pro Tip:
Use annuities only for income. Use other investments for growth and inheritance.
That way, each dollar has a clear job.
When an Annuity Doesn’t Make Sense
4. Liquidity Is Your Top Priority
If you need:
- Full access to your money
- Flexibility for large withdrawals
- Short-term use of funds
An annuity may not be a good fit.
Even though many contracts allow withdrawals, they’re not designed for frequent or unpredictable access.
5. You’re Young and Focused on Growth
If you’re:
- In your 30s or early 40s
- 15–25 years away from retirement
- Comfortable with market volatility
You may benefit more from compounding and growth-focused strategies first.
That said — annuities can make sense for younger individuals in certain cases:
- Inherited IRAs with required liquidation timelines
- Lump sums where protection matters more than growth
👉 Every situation is different. Age alone doesn’t decide — goals do.
6. You’re Chasing Maximum Market Returns
If your top priority is beating the stock market, annuities are not built for that.
Historically:
- Stocks outperform annuities over long periods
- But stocks come with volatility and timing risk
Annuities are about:
- Stability
- Protection
- Predictable income
Not market domination.
Real-World Example: What Income Can Look Like
Let’s say:
- $500,000
- Married couple
- Age 60
- Immediate lifetime income
Today’s annuity options can generate $40,000 – $60,000 per year, guaranteed for life, even if the account value eventually reaches zero.
If income is deferred to age 65, payouts increase significantly — sometimes by $10,000+ per year.
In simple terms:
- You’re trading a lump sum
- For a lifelong paycheck
- With peace of mind attached
💡 Pro Tip: You’re not buying an account — you’re buying a pension.
The Balanced Way to Use Annuities
The smartest retirees don’t choose between annuities and investments.
They use both.
✔ Annuities for guaranteed income
✔ Investments for growth and legacy
✔ Cash for liquidity and emergencies
This balance reduces stress and increases confidence — especially when markets get rough.
Conclusion
Annuities are neither good nor bad.
They’re specific solutions for specific problems.
If you’re looking for:
- Guaranteed income
- Protection from market downturns
- A paycheck you can’t outlive
An annuity may make sense for part of your plan.
Need help with finding the best annuity for your retirement?
Click here to schedule a call with me.
On the call, I can help you:
- Determine what type of annuity is best for you
- Find the highest paying annuities for your unique situation
- Answer any other questions you may have