An income annuity solves one big risk — outliving your money. It brings three others you should weigh honestly.
1. Inflation
Most SPIA payments are level. At 3% inflation, a fixed check buys about a quarter less after 10 years and about 45% less after 20. Social Security, by contrast, gets a cost-of-living adjustment most years.
- Some carriers offer payments that rise by a set percentage each year, in exchange for a lower starting check.
- Many people annuitize only part of their savings and keep the rest invested for growth.
- Others buy in stages — one SPIA now, another a few years later.
2. Liquidity
Once you buy, you generally can’t get the lump sum back. Keep an emergency fund separate, and don’t annuitize money you may need for large expenses.
3. Dying early
With life-only income, payments stop at death — even if that’s soon after you buy. Guarantee options (period certain or cash refund) protect your heirs for a modest reduction in income. Compare guarantee options.
Context: by the SSA’s 2023 period life table, a 65-year-old man’s average life expectancy is about 83.1 and a 65-year-old woman’s about 85.7 — and averages mean many people live well past them.
