Should I Buy an Annuity? A Decision Checklist, Not a Sales Pitch

You should consider an annuity if you have a specific pile of money with a long timeline, an income gap that guaranteed payments would close, and a cushion of liquid savings elsewhere. You should not buy one if you might need the money soon, have not used cheaper retirement accounts yet, or cannot explain the product back in your own words.

Buying an annuity is less like picking a stock and more like signing a mortgage. Nobody asks whether mortgages are good or bad in the abstract. They ask whether this payment, on this house, on this timeline, fits the life they actually have. The commitment is the product. That is true of an annuity too, and it is why “are annuities good” is a question with no honest answer.

So this page will not try to sell you one. It is a checklist, and it can end in no. That is a legitimate outcome, and for a good number of readers it is the right one. We would rather you rule an annuity out in ten minutes here than rule it in over a ninety-minute presentation somewhere else. If you need the lay of the land first, the annuities hub maps every type, and annuity pros and cons covers the trade-offs product by product.

Annuities are, for the record, a mainstream product and not a fringe one. LIMRA reported total U.S. retail annuity sales of $464.1 billion in 2025, a fourth consecutive record year. That tells you a lot of families are asking this question. It tells you nothing about whether you should be one of them.

• This page assumes nothing about you. Not your age, not your balance, not whether you already talked to someone.
• It separates the two real questions. Whether an annuity fits at all, and if so how much and which kind. Most sales conversations collapse those into one.
• It puts the alternatives on the table. Including the option of doing nothing, which is sometimes correct.

What are you actually asking when you ask this?

You are almost always asking one of two very different questions, and they have different answers. Sorting out which one you are asking is the fastest way to get unstuck.

If your answer is the first or second, the rest of this page is useful. If it is the third or fourth, the honest move is to slow down.

What are the real reasons to buy an annuity?

The real reasons to buy an annuity are narrow and specific, and if none of them describe you, that is your answer.

• You have an income gap. Add up Social Security and any pension, subtract your essential monthly expenses, and if the number is negative, that gap is the clearest case for guaranteed income. Our retirement income gap guide walks the arithmetic.
• You are worried about outliving your money, not about beating an index. Lifetime income is the one thing an annuity does that no other retail product does. That is longevity risk, and it is a real risk, not a sales angle.
• You want a predictable floor under your plan. Some retirees want essentials covered by guaranteed sources so the rest of the portfolio can stay invested without panic. That is the income floor approach.
• You have money with a known, distant date. Cash you will not touch for five or ten years, where a locked rate is worth more to you than flexibility. Current terms and rates sit on the MYGA rate board.
• You have already filled the cheaper buckets. Employer match, 401(k), IRA, HSA. An annuity after those is a reasonable next step. An annuity instead of those usually is not.
• You want to reduce decisions, not add them. For some households, converting part of the portfolio into a paycheck genuinely lowers the cognitive load of retirement. That has value even though no spreadsheet shows it.

What are the real reasons not to buy one?

The real reasons not to buy an annuity are just as concrete, and they disqualify more readers than the reasons above qualify. Read this section slower than the last one.

• You might need the money. Nearly every deferred annuity carries a surrender period, commonly three to ten years. If there is a realistic chance you need this cash for a roof, a car, a medical bill, or a child, the product is wrong regardless of the rate.
• You have no emergency fund. An annuity is not an emergency fund and cannot be treated as one. Build the liquid cushion first.
• You have unused tax-advantaged space. Employer match left on the table is a guaranteed loss. Fill the free money first. See annuity plus 401(k) for how the two fit together rather than compete.
• You are decades from retirement and need growth. A product built for certainty is not the tool for a thirty-year growth horizon. This is not the place for money you want to grow aggressively.
• You cannot explain it back. If you cannot describe the product, the surrender schedule, and the fees in your own words to a skeptical friend, you are not ready to sign. Complexity is where bad deals hide.
• You are being rushed. Any version of “this rate ends Friday” applied to a decision this size is a reason to stop, not to hurry.
• You want to leave the maximum to heirs. Some annuity structures reduce what passes on, especially once income has started. If legacy is the top priority, say so out loud before anyone quotes you.
• Someone else is more excited than you are. Enthusiasm should come from the buyer.

What should you fix before you buy anything?

Fix the order of operations before you shop products, because most annuity mistakes are sequencing mistakes rather than product mistakes.

What are the alternatives to an annuity?

The alternatives to an annuity depend on which job you are trying to fill, and every one of them beats an annuity at something. Here is the honest field.

Delaying Social Security deserves a line of its own. For many households it is the most efficient guaranteed-income decision available, and it should generally be examined before any purchased income product. An annuity is often the tool for what is left after that, not a replacement for it.

How much of your savings should go into an annuity?

Enough to cover the specific job, and no more. There is no universal percentage, and anyone who leads with one before knowing your expenses is guessing.

The practical way to size it is backwards from the gap rather than forward from the balance. If your essential expenses exceed your guaranteed income by a set amount each month, that shortfall is what an income product would be sized to cover, and the rest of your portfolio stays flexible. Sizing from a percentage of net worth gets the logic backwards.

Does age or timing change the answer?

Age changes which type fits, not whether the checklist applies. The disqualifiers above hold at every age.

As for whether to buy now or wait, rates move and nobody can time them reliably. If you are weighing that specific question, buy an annuity now or wait takes it apart on its own.

The checklist

Here is the whole decision in one place. Count your yeses honestly.

• A specific job. I can name what this money is for in one sentence, and it is income or preservation, not growth.
• A timeline that fits. I will not need this specific money for at least the length of the surrender period.
• A cushion elsewhere. My emergency fund and liquid savings sit outside this money and stay untouched by the purchase.
• Cheaper accounts used first. I have captured any employer match and used the tax-advantaged space that makes sense for me.
• A gap I have measured. I have subtracted essential expenses from guaranteed income and I know the number.
• Clear on the backing. I understand this is backed by the issuing insurer’s claims-paying ability and is not FDIC insured.
• Clear on the costs. I have seen the surrender schedule and the all-in annuity fees in dollars, not just a percentage.
• Carrier checked. I have seen the issuing company’s financial-strength rating.
• No pressure. Nobody has given me a deadline, and I am the most enthusiastic person in the conversation.

Seven or more, an annuity is worth a serious look. Four to six, you have homework rather than a decision. Three or fewer, the answer is no for now, and no is a complete sentence.

Where does that leave you?

Back at the mortgage. The right question was never whether annuities are good. It was whether this commitment, at this size, on your timeline, fits the life you actually have. If it does, an annuity does one job that nothing else on that alternatives table does. If it does not, none of its advantages matter.

Whichever way your count came out, the next step is the same: run your real numbers against your real timeline with someone who is required to show you both sides and who is not upset when the answer is no.

Frequently asked questions