Should I Buy an Annuity? Pros, Cons and How to Decide (2026)

A quick checklist before you read further

You are a reasonable candidate for an annuity if at least three of the following describe you:

• You are between roughly 55 and 75.
• You have at least $25,000 sitting in non-emergency cash or a rollover-eligible account.
• Guaranteed lifetime income, principal protection or tax-deferred growth is something your current plan is missing.
• You can leave the money alone for at least 3 years, and ideally 5 to 10.
• You already keep 6 to 12 months of expenses in reserve outside of the annuity.

If fewer than three apply, an annuity probably is not the right move for you today. The sections below explain why, and what tends to work better instead.

Who tends to benefit from an annuity

An annuity is a good fit when it is solving one of a handful of specific problems in a retirement plan.

You want income that cannot run out

Without a pension, the fear of outliving your savings in your 80s or 90s is real. A lifetime income product, whether that is a Single Premium Immediate Annuity, a Deferred Income Annuity, or a fixed index annuity with an income rider, converts part of your savings into a check that keeps arriving for as long as you live. As an example, a 65-year-old putting $200,000 into an immediate annuity can commonly lock in guaranteed monthly income in the range of $1,300 to $1,500 for life, a figure that does not move even if the market falls sharply the following year.

You want your principal protected at a competitive rate

A well-priced multi-year guaranteed annuity has historically paid noticeably more than a comparable-term bank CD, often by 1 to 2 percentage points, while locking that fixed rate for the entire term. On a hypothetical $100,000 deposit, the gap between a 5.50% MYGA and a 4.00% CD, both compounding annually, works out to roughly $9,000 more in the annuity by the end of a 5-year term, before counting the tax deferral a CD does not offer. Actual rates on both sides shift with the broader rate environment, so pull current numbers with a free quote rather than relying on any figure printed here.

You have already maxed out your other tax-advantaged accounts

Once your 401(k) and IRA are full for the year, a non-qualified deferred annuity is one of the more straightforward ways to keep growing savings without a 1099 showing up every January. Confirm this year's exact limits before you plan around them, since they typically adjust annually.

You want to soften sequence-of-returns risk

The first several years of retirement carry outsized weight in how the whole plan turns out. If the market drops hard in year one of retirement and you are drawing 4% from a portfolio, you are forced to sell into the decline just to cover living expenses. Covering your essential spending with a lifetime income annuity instead lets the rest of your investment account recover on its own timeline, undisturbed.

You want a death benefit, joint income or long-term-care protection built in

Many annuity contracts offer a spousal continuation option, a joint-life income election, or an enhanced payout that increases if you cannot perform basic daily activities on your own. A CD or a standard brokerage account offers none of that.

Who should probably skip an annuity

An annuity is the wrong tool in a handful of common situations.

You need the whole balance to stay liquid

Every annuity carries a surrender schedule. If there is a real chance you will need the full amount within the next 1 to 3 years, for a home purchase, a business, or any large planned cost, a high-yield savings account or a short CD is the better home for that money.

You are under 59 and a half and the money is non-qualified

Pulling money from a non-qualified annuity before 59 and a half triggers a 10% IRS penalty on top of ordinary income tax on the earnings. That math rarely pencils out unless the funds already sit inside an IRA or 401(k), where the same early-withdrawal rules that already applied to that account continue to apply.

Your guaranteed income already covers your needs comfortably

If Social Security plus a pension already handles your essential expenses with room to spare, an annuity becomes optional rather than necessary. That money is often better used for growth and legacy in a diversified investment account instead.

You have less than roughly $10,000 to deposit

Most carriers will not issue a contract below that floor, and some of the more competitive contracts start at $25,000 or $50,000. For a smaller amount, a CD or money market account is the more practical choice.

You want unlimited upside

Annuities trade away some growth potential in exchange for guarantees. If you are entirely comfortable riding out full market swings and your time horizon runs 15 years or longer, a diversified stock portfolio will typically outgrow any annuity over that stretch. The cost of that upside is that there is no floor underneath you.

Four scenarios where an annuity does real work

Bridging the gap to a bigger Social Security check

James is 62 and retiring this year, but he wants to hold off claiming Social Security until 70 to capture the larger benefit, an increase that can run around 77% more than claiming at 62. He places $300,000 into an 8-year period-certain SPIA. Using a hypothetical payout assumption, that could generate roughly $3,700 a month for the full 96 months, covering his living costs from 62 until Social Security starts at its maximum. Once the SPIA term ends at 70, his maximized Social Security benefit takes over.

Joint income that continues for either spouse

Carol and Walter, both 70, are holding $250,000 in a taxable money market account and want lifetime income that continues no matter which of them passes away first. They move the balance into a fixed index annuity with a joint-life income rider. At a hypothetical 5.2% payout rate, that rider would generate about $13,000 a year for as long as either of them is alive; if Walter dies first, Carol keeps receiving the full payment.

Protecting principal in the mid-70s

Ruth, 76, holds $400,000 in a brokerage account that is more aggressively invested than she would like at her age. She is not ready to start income yet, but wants to lock in growth without market risk on part of that balance. She moves $200,000 into a 5-year MYGA. At a hypothetical 5.75% rate compounding annually, that portion grows to roughly $264,500 by the end of the term, regardless of what the market does in the meantime. The remaining $200,000 stays invested for growth and for her heirs.

Tax-deferred growth after the retirement accounts are full

Marcus, 58, sits in the 24% federal tax bracket and has already maxed his 401(k) and Roth IRA for the year. He puts another $50,000 into a 7-year MYGA. At a hypothetical 5.75% rate, that grows to about $73,950 by the end of the term with no annual 1099 along the way. If he had instead put the same $50,000 in a CD paying the same rate but taxed every year at 24%, it would grow to roughly $67,450 after tax over the same 7 years. Even after Marcus eventually pays tax on the annuity's gain at withdrawal, deferral still leaves him modestly ahead, and further ahead if his tax bracket is lower by the time he takes the money out.

Matching the annuity type to the job

The right structure depends entirely on what you are trying to accomplish.

Single Premium Immediate Annuity (SPIA)

The right fit when you want income to begin within about a year and continue for life or a chosen period. In return for handing over the lump sum, you get a check that arrives on schedule no matter what happens in the market. See our SPIA guide for how payout rates work.

Deferred Income Annuity (DIA)

The right fit when you want to lock in a future stream of lifetime income that starts 5 to 20 years from now, often used as insurance against outliving your money late in life. A 60-year-old who deposits today and starts income at 80 is a typical setup. See our comparison of SPIA vs. DIA vs. MYGA.

MYGA (Multi-Year Guaranteed Annuity)

The right fit when you want a fixed, guaranteed rate locked in for 3 to 10 years with full principal protection and tax deferral, essentially a CD with historically stronger yield on comparable terms. See our MYGA guide.

Fixed Index Annuity (FIA)

The right fit when you want downside protection paired with the potential for index-linked upside, frequently combined with a lifetime income rider. Growth is limited by caps, spreads or participation rates rather than tracking the index dollar for dollar. See our fixed index annuity guide.

Variable annuity

A narrower fit, generally suited to buyers who specifically want market participation inside a tax-deferred structure, often alongside an optional income guarantee. Fees tend to run higher and the account carries full market risk, which makes this the least common recommendation among the group. See our variable annuity guide.

A six-step way to decide

• Name the job. Decide whether income, principal protection or tax-deferred growth is the primary problem you are solving. Pick one as the lead goal.
• Confirm your reserves. Make sure 6 to 12 months of expenses sit outside the annuity before you commit new money to it.
• Set your horizon. Figure out how long you can genuinely leave this money untouched, and match the surrender period to that number.
• Pick the structure that matches. Lean toward a SPIA or a DIA if income is the job, a MYGA if safe growth is the job, or an FIA if you want some upside layered on top of protection.
• Compare carriers on more than the headline rate. As an independent agency appointed with multiple carriers, we can set any contract you are considering against other top-rated options rather than pitching a single company.
• Check it against the rest of your plan. Revisit your Social Security timing, any pension election, and your investment allocation once the annuity is factored in, to make sure everything still lines up.

Mistakes worth avoiding

• Putting too much into one contract. A common planning rule keeps annuities somewhere between a quarter and half of a household's total retirement savings, leaving the rest free for liquidity and market growth.
• Choosing a contract for the income rider alone. A rich-looking rider sitting on a weak underlying cap can underperform a more modest rider paired with a strong cap, since the base contract is what actually compounds.
• Skipping the carrier's financial strength. Favor carriers rated A- or better by AM Best. A slightly higher rate from a weaker-rated company is rarely worth the added solvency risk; our insurance company ratings guide explains how to read the grades.
• Buying purely for tax deferral inside an IRA. An IRA is already tax-deferred, so that specific benefit adds nothing there; buy inside an IRA for the income guarantee instead.
• Not asking about the surrender schedule up front. Charges can start near 9% in year one and step down roughly 1 percentage point a year after that. Know the full schedule before signing; our surrender charges guide breaks down how these typically work.

Timing the purchase

Broadly speaking, the best window to buy is when the general interest rate environment is elevated and your own time horizon still runs 5 to 15 years. If you are within a decade of retirement, locking a longer term while rates are attractive is usually the stronger move; if you expect rates to climb further, a shorter term keeps you free to reinvest sooner. Because both MYGA and CD rates shift regularly, the only reliable way to know where things stand today is to pull current numbers rather than relying on a printed figure, which is exactly what a free quote is for.

How and where to buy

Once you have decided an annuity fits, two practical questions remain. Our how to buy an annuity guide walks through the purchase process step by step, and our roundup of where to buy an annuity covers the marketplaces worth considering.

Ready to see what fits your own numbers? Request a free quote or schedule a no-pressure call with a licensed strategist, and bring your questions about carriers, riders or timing along with you.