Be Very Deliberative When Considering an Annuity

Personally I’m Not into Annuities

annuitiesAnd I’m not alone. Dave Ramsey, personal finance author and radio show host, also isn’t a fan of annuities. There are plenty of reasons why. One of the main reasons is that annuities have significant expenses that reduce the growth of your investment. Annuities also have surrender charges on early withdrawals that can limit access to your money in the first few years after you buy the annuity. Another well-known financial adviser, Suze Orman, says this about annuities: “Not very many of us should be investing in annuities at all. There are reasons why they sometimes make sense, but there are even more reasons why they mostly do not”.  And then there’s highly respected financial adviser Ken Fisher who runs TV ads saying he’ll never sell annuities because anything that can be done with an annuity can be done a better way. Ken says: “The prevailing tack for selling annuities is the same type of shifty pitch on which every Ponzi scheme is premised”.

Still Interested?

Annuities are complex and are sold as commissioned insurance products. They are not investments. If you are considering annuities, it should be done with intent and deliberation. Be sure to develop clear use cases that define your objectives. Here’s an example of three cases.

Case 1: purchase an immediate annuity to cover non-discretionary expenses. The objective of this case is to lock in a guaranteed income in order to keep a roof over your head and the lights on despite what’s happening in the markets, economy and geo-political arenas. Think of it as a type of disaster planning insurance.

Case 2: purchase an immediate annuity to cover “the gap” which is the difference between other income (such as pensions and Social Security) and monthly expenses. This case appeals to someone who’s not into personal finance and just wants the peace of mind knowing that retirement expenses are covered.

Case 3: Purchase a deferred annuity that starts payments 15 – 20 years in the future in lieu of long-term care insurance. An annuity might be more attractive instead of buying long-term care insurance which is expensive, complex and in some cases risky.  This case applies to someone who is comfortable self-insuring and who wants additioanal long-term security.


If you decide to purchase an annuity go about it intentionally. Know what “problem” you want to solve. Go beyond the annuity siren song of “life-time guaranteed income” to learn as much as you can about your options including surrender charges. Do not confuse simulated returns or expected returns with actual historical returns.  As always seek advice from multiple sources because annuity contracts are lengthy, complex and sellers do not have a fiduciary duty to you.

If you’d like more insight into my perspective, check my article on Annuities and Bond Ladders.

Note that I am not a financial professional. I am simply sharing my perspective for illustrative purposes. As always check with you financial professionals. Your decisions are yours to make.

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