Are Annuities a Good Investment? An Honest Answer

It depends entirely on which kind. The simple income annuity that retirement researchers praise does one thing no other product can: it pays you a guaranteed income for life. The high-fee variable annuities that influencers trash are a different animal. So the honest answer is yes for the right retiree buying the simple kind, and no for most people buying the expensive kind. The trick is telling them apart.

Here is something that should make you stop and think. Finance influencers love to trash annuities as a scam. Yet the economists and researchers who study retirement income for a living, the people with nothing to sell you, have spent decades arguing the opposite. They find that most retirees should own a simple one. They even have a name for how few people do: the annuity puzzle.[1] I am licensed to sell these, so I will referee it straight, including who should skip them.

The one thing an annuity does that nothing else can

An income annuity is the only product that can guarantee you a paycheck for life. Not for 10 years. For life, no matter how long you live, no matter what the market does. A stock cannot do that. A bond cannot. Only this.

It solves the scariest math problem in retirement. It is called longevity risk: the risk of living to 95 and running out of money at 88.[2] You cannot know how long you will live, so you cannot know how much you can safely spend. A portfolio can be drained by a bad market at the wrong time. An income annuity cannot be outlived. You hand an insurer a lump sum, and they pay you for as long as you are alive. You have bought yourself a personal pension.

Annuity type | Main job | Main trade-off
Immediate income annuity. | Starts lifetime income soon. | Principal becomes hard or impossible to access.
Deferred income annuity or QLAC. | Covers income late in life. | Money is committed years before payments start.
Fixed annuity or MYGA. | Provides a stated rate for a term. | Insurer credit replaces FDIC deposit insurance.
Variable annuity. | Combines investments with insurance features. | Fees, riders, and surrender terms can be complex.

Mortality credits: the part nobody explains

Here is the mechanism that makes an income annuity special. It can pay you more than a bond, safely, because of something called the mortality credit.[1]

A large group of retirees pools money into income annuities. Some will pass away earlier than expected, and some later. The money from those who pass earlier does not vanish. It stays in the pool and is paid out to those who live longer. You are not just getting your own money back with interest. You are getting a share from people who did not need theirs. That extra yield is the mortality credit. A bond cannot copy it, because a bond cannot pool longevity. This idea goes back to Menahem Yaari's 1965 model. Decades of research have built on it since.[1]

So why does everyone say annuities are bad?

If the research is this positive, why the bad reputation? Two honest reasons, and neither is "the product is a scam."

Reason one: people mix up the good annuities with the bad ones. "Annuity" covers wildly different products, and the internet lumps them together. The simple income annuities researchers praise are plain and low-cost. The complex variable annuities are loaded with fees. Critics who call annuities a ripoff usually mean one thing. It is a high-fee variable annuity with stacked riders.[3] They are right about that one. They are wrong to smear the whole category with it.

Reason two: it is a real psychological blind spot. Buying lifetime income forces you to think about your own death. Studies show people avoid the product partly to dodge that thought. They skip it even when the math favors it.[4] Annuitizing can also feel like giving up control of your money. The reluctance is emotional, not financial. That is the actual annuity puzzle.

The types that are genuinely worth it

Single premium immediate annuity (SPIA), the gold standard

A single premium immediate annuity is the one type most retirement researchers endorse. You hand over a lump sum, and income starts within a year and lasts for life.[5] As an illustrative example, a 70-year-old might turn a lump sum into a fixed monthly check for life. The exact amount varies by age, gender, insurer, and current rates. It is simple and efficient at turning savings into secure income.

Deferred income annuity and the QLAC, buy now, income later

A deferred income annuity lets you pay now and start income later. A qualified longevity annuity contract, or QLAC, is a version bought with retirement-account money.[6] You might put money in at 65 and turn on income at 85. That cheaply insures against the "living too long" tail. It is an elegant way to cover the far end of a long life.

Fixed annuity and the multi-year guaranteed annuity (MYGA), the CD that can pay more

A fixed annuity, including a multi-year guaranteed annuity (MYGA), guarantees your principal plus a stated rate, tax-deferred.[7][9] It works like a bank CD, but has often paid a higher rate. One honest catch: an annuity is not FDIC insured like a CD.[8] It is backed by the insurer's ability to pay claims and, as a backstop, state guaranty associations. So the company's strength matters. For the plain-cash version of "safe money," see where to keep cash.

The honest guardrails

These limits are real. They just do not add up to "never buy one."

Before buying | What to compare
Income need. | Essential monthly gap after Social Security and any pension.
Liquidity. | Cash that must remain outside the contract.
Guarantee. | Issuer strength, benefit form, and survivor terms.
Cost. | Commission, spread, fund fee, rider fee, and surrender charge.
Inflation. | Whether income is level, indexed, or otherwise adjusted.
Alternatives. | Bonds, CDs, plan withdrawals, and a delayed Social Security claim.

Skip the expensive versions. Fees on the complex variable annuities can stack up, sometimes above 3 percent a year.[3] That is where the bad reputation is earned. Stick to simple income annuities and MYGAs.

Do not annuitize money you will need soon. Income annuities are irrevocable and illiquid by design. That is the trade for the mortality credit. Only use money set aside for lifetime income.

Do not buy one inside an IRA just for a tax break. The IRA is already tax-deferred, so you gain nothing there. A QLAC inside an IRA is a different case, bought for longevity protection, not taxes.[6]

It is a piece, not the whole plan. Research favors partial annuitization: cover your essential bills with guaranteed income, and invest the rest for growth. See investing $300 a month for the growth side, and the HSA as a retirement account for another retirement bucket.

Who this is genuinely powerful for

If you are at or near retirement, have no pension, and fear running out of money, the research is on your side. Cover your essential bills with guaranteed income, on top of Social Security. Think housing, food, and healthcare. Researchers call this one of the best-supported moves in retirement planning.[1] It lets you spend more calmly. It can even leave more behind, because you no longer have to hoard against a future you cannot predict. Before you buy, run these questions to ask a financial advisor. You can also compare a simple income annuity with its index-linked cousin in how an IUL really works.

Common questions

Are annuities worth it?

The simple income kinds usually are, for the right retiree. A single premium immediate annuity turns savings into income you cannot outlive, and researchers widely endorse it.[1][5] The complex, high-fee variable annuities usually are not worth it.[3] So the honest answer depends on the type and the reason you are buying.

Can you lose money in an annuity?

It depends on the type. A fixed annuity or MYGA guarantees your principal plus a stated rate.[7] A variable annuity is tied to investments and can lose value.[3] And any annuity is only as safe as the insurer behind it, because annuities are not FDIC insured.[8] Choose a strong company and the simple kind.

Who are annuities good for?

They fit retirees who have no pension, fear outliving their money, and want to cover essential bills with guaranteed income.[1] They are a poor fit for young investors, for money you will need soon, or for anyone sold a high-fee version they do not understand.[3] Match the tool to the job.

Should I buy an annuity for retirement?

Consider a simple income annuity if you are near retirement and want guaranteed income for essential expenses on top of Social Security.[1][5] Use only money set aside for lifetime income, buy from a strong insurer, and annuitize a part, not everything. Skip it if you need the money liquid or if you are being sold a costly, complex contract.

This is general education, not tax, legal, or investment advice. Annuity rates, fees, and terms vary by insurer and contract, and guarantees rest on the issuing company's ability to pay claims. Research findings describe general groups, not your specific outcome. I am a licensed insurance and financial professional, and I can be paid when someone buys an annuity or policy. I say so because knowing how your advisor is paid is part of judging any advice, including mine. Review your situation and the full contract with qualified professionals before acting.

Sources

Center for Retirement Research at Boston College, "The Annuity Puzzle and Negative Framing". Accessed July 27, 2026.

U.S. Social Security Administration, Office of the Chief Actuary, Actuarial Life Table. Accessed July 27, 2026.

FINRA, "Annuities". Accessed July 27, 2026.

Center for Retirement Research at Boston College, "How Much Do People Value Annuities and Their Added Features?". Accessed July 27, 2026.

U.S. Securities and Exchange Commission, Investor.gov, "Annuities". Accessed July 27, 2026.

Internal Revenue Service, Publication 590-B (distributions from IRAs, including qualified longevity annuity contracts). Accessed July 27, 2026.

Internal Revenue Service, Publication 575 (Pension and Annuity Income). Accessed July 27, 2026.

Federal Deposit Insurance Corporation, "Deposit Insurance". Accessed July 27, 2026.

Internal Revenue Service, "Topic no. 410, Pensions and Annuities". Accessed July 27, 2026.