Is an Annuity a Good Idea?

The honest answer: it depends on the job you need the money to do.

Different annuities do different jobs. This article focuses mainly on fixed lifetime-income annuities, which turn a lump sum into regular payments you cannot outlive. Other annuities, such as MYGAs, are designed to accumulate money at a fixed rate for a stated period.

What an income annuity actually does

You hand an insurance company a lump sum, and it pays you a monthly check for as long as you live — even past age 100. The check doesn't depend on the stock market, and it doesn't stop because you live longer than expected.

What that buys you is a floor: a dependable contribution toward essential expenses for as long as you live. What it costs you is the subject of the rest of this page. A good explanation should cover the costs and limits as clearly as the benefits.

When it may help

• You have an income gap. Your essential monthly expenses are more than Social Security and any pension will cover, and you want the difference guaranteed rather than hoped for.
• You have no pension. An income annuity is the closest thing to building one for yourself.
• Long life runs in your family — or you simply don't want to budget like it won't. The longer you live, the more total income a lifetime annuity pays.
• Market swings would keep you up at night. A fixed monthly check arrives the same in bad markets as in good ones.

A worked example, from our current published estimates (single life, life only, income starting about one month after purchase): a 65-year-old man who puts $250,000 into an income annuity receives an estimated $1,639–$1,750 a month for life, before tax. A 65-year-old woman with $100,000 receives an estimated $622–$665 a month for life, before tax. Every month, for as long as they live.

When it may not fit

• You may need the lump sum. Once you buy an income annuity, you generally can't get the lump sum back. Money earmarked for a house, a business, or large near-term expenses doesn't belong in one.
• You have no separate emergency fund. An annuity is not a savings account. Keep accessible cash outside it — always.
• Your essential expenses are already covered by Social Security and pension income, and your savings are invested for growth or heirs. You may simply not have the problem an annuity solves.
• You need the money to outgrow inflation over decades and you're comfortable carrying market risk to do it. A level annuity check is built for certainty, not growth.

Costs and limits

Liquidity. This is the big one. An income annuity trades access for certainty: the lump sum becomes a monthly check, permanently. Deferred annuities are different but not free either — taking money out of a MYGA early can incur surrender charges and a market value adjustment, and taxable withdrawals before age 59½ may also incur an additional 10% federal tax unless an exception applies.

Inflation. The fixed lifetime-income payments illustrated here are level — the same dollar amount every month. Prices are not level, so a fixed check buys less as years pass. Some carriers offer payments that rise by a set percentage each year in exchange for a lower starting check, and many people annuitize only part of their savings for exactly this reason. Our article on inflation, liquidity, and dying early works through this honestly.

Dying early. With life-only income, payments stop at death — even if that's soon after you buy. Guarantee options exist for this. In our modeled examples, adding a 10-year certain period reduces the corresponding monthly estimates by about $65–$69, before tax (for a 65-year-old man with $250,000: an estimated $1,574–$1,681 instead of $1,639–$1,750). The actual difference depends on the carrier and contract. If he dies within the first 10 years, his beneficiary receives the remaining payments in that period. The choice balances monthly income with protection for your beneficiaries.

Complexity — in some products. A basic income annuity and a basic MYGA are simple contracts. Other annuity types add riders, index formulas, and fee structures that take real work to understand. A useful rule: if you can't explain back how your money grows, moves, or gets paid out, don't sign yet. Ask the questions in our buyer's checklist — of any seller, including us.

The guarantee is only as strong as the company. Annuity guarantees are backed by the claims-paying ability of the issuing insurance company. That's why exact quotes should be compared on identical terms — and why who stands behind the contract matters, not just the size of the check.

Alternatives

• CDs and bond or Treasury ladders keep your principal accessible at maturity and pay interest you can spend. What they don't do is promise income for life. A ladder provides scheduled maturities, but it does not guarantee income for however long you live. Continuing it requires reinvestment at future rates, which may be higher or lower. Our comparison of SPIA vs CDs and Treasuries goes deeper.
• Drawing down investments keeps you in control — the money stays yours, invested, available, and inheritable. The risks move to you: a bad market early in retirement, and the possibility of spending too fast or too slowly because nobody can budget against an unknown lifespan.
• A mix is what many people land on: guaranteed income covering the essentials, the rest kept liquid and invested. "Annuity or not" is rarely the real question; "how much of the floor should be guaranteed" usually is.

And a growth comparison, for the money whose job is simply to grow safely: $100,000 in a MYGA at the typical-to-highest rates in our October 25, 2026 snapshot — 5.40% to 6.40%, compounded annually, all interest retained, no withdrawals — grows to an estimated $130,078–$136,367 over five years, before tax. These are illustrative benchmarks, not a confirmation that a specific product is available or a guaranteed calculator result. One backing distinction matters: CDs at FDIC-insured banks have federal deposit insurance within applicable limits. MYGAs are insurance contracts backed by the issuing insurer's claims-paying ability, not FDIC insurance. Compare rates, access restrictions, and tax treatment on otherwise comparable terms. Nonqualified MYGAs generally defer tax on earnings until distribution. Different tools, different promises.

How to decide

1. Add up your essential monthly expenses — housing, food, utilities, insurance, the bills that don't care about the stock market.
2. Subtract the income you already have from Social Security and any pension, after applicable taxes. The difference is your income gap.
3. Size the annuity to the gap, not to your whole savings. Many people cover part or all of the gap and keep everything else liquid and invested. Our target income calculator works backwards from the monthly check you want. Remember that the estimator shows income before tax.
4. Decide on the guarantee — life only pays the most; period certain or cash refund protects your family for a modest reduction.
5. Compare exact quotes on identical terms — same age, same premium, same start date, same guarantee. Quotes for the "same" annuity can differ by several hundred dollars a year between carriers.

SPIA income estimates on this page are modeled from published carrier quote surveys as of October 1, 2026, and calibrated against live carrier quotes from October 2026; before tax. Exact quotes vary by carrier, state, and premium size. MYGA figures are illustrative benchmarks from our October 25, 2026 snapshot of published rates.