At what age should you buy an annuity?

Lifetime-income annuities generally pay more the older you are at purchase, because the insurer expects fewer years of payments. Buyers most often purchase between the mid-fifties and early seventies, near the transition into retirement. Earlier purchases can make sense for deferred growth, but if the goal is the highest lifetime paycheck per dollar, buying at or just before retirement is usually the better trade.

What are the downsides of an annuity?

The main ones are illiquidity (surrender charges and, once income starts, no lump sum at all), complexity (some contracts carry dozens of moving parts), cost (riders and commissions are priced into the terms), inflation (level payments lose buying power), and insurer risk (the guarantee is only as strong as the carrier, with a capped state backstop). None of these is disqualifying alone, but together they mean the money must be money you do not need back.

Are annuities a good investment for retirement?

An annuity is not really an investment; it is insurance against running out of money. As an investment it usually loses to a simple index portfolio over long periods, because you are paying for guarantees. As insurance it does something the portfolio cannot: convert savings into income that cannot be outlived. Judge it by the job, not by comparing returns to stocks.

How much of my savings should go into an annuity?

There is no official number, and anyone quoting one as a rule is guessing. The practical constraint is liquidity: money that may be needed for emergencies, health costs, or opportunities should stay accessible, which usually means only part of a retirement portfolio is a candidate. Many planners suggest thinking in terms of covering essential expenses, not in percentages of net worth.

Can you lose money in a fixed annuity?

The insurer's guarantees cover the credited interest, so the account value does not fall with markets. You can still lose money in three ways: surrender charges if you exit early, inflation quietly eroding a long-held balance, or the small risk the insurer fails — mitigated but not eliminated by state guaranty association limits. Variable and registered index-linked annuities carry real market loss; the fixed ones do not.

Is an annuity better than a 401(k)?

They are not rivals. A 401(k) is a tax-advantaged account that holds investments; an annuity is a contract that can sit inside or outside such an account. Contributing to a 401(k) with any employer match comes first in nearly every plan. An annuity is a later-stage decision about converting some of what you have accumulated into guaranteed income.

Do I have to annuitize to use an annuity?

No. A deferred annuity can simply grow at a fixed or index-linked rate, and you can withdraw or take income without ever converting to a lifetime payout. Annuitization — trading the balance for a guaranteed income stream — is optional in most contracts. If a salesperson tells you otherwise, ask to see the contract's withdrawal provisions.

Annuity guide

Is an Annuity Right for Me? An Honest Way to Decide

Most annuity articles end with a sales pitch wearing a question mark. This one won't. An annuity solves a real problem — income that cannot run out — and it does so at a real cost. Whether that trade makes sense depends on facts about your life, and this page lays out which facts decide it.

Last updated September 27, 2026 · Reviewed against our editorial methodology

The short answer

An annuity is right for money whose only job is to pay you, reliably, for as long as you live — and wrong for money you might need back, might want to leave to someone, or might want to grow aggressively. If you have other resources for emergencies and a spouse's needs are handled, converting part of your savings to lifetime income is one of the most defensible moves in retirement planning. If you are being shown an annuity before you have an emergency fund and access to a 401(k) match, walk away.

What job an annuity actually does

Strip the sales language and an annuity is longevity insurance. A 65-year-old couple has a meaningful chance that at least one of them lives past 90; Social Security's actuarial tables put that risk in plain numbers. A portfolio sized for thirty years can fail if you live thirty-five, and no amount of withdrawal discipline fixes outliving your money. The annuity is the only retail product that removes that specific risk, because the insurer pools thousands of lifespans and the people who die early fund the people who live long.

That is also the price. The pooling means your money generally does not pass to your heirs on a life-only contract, the payments are locked at purchase, and the insurer's cut sits inside the rates. You are trading upside and control for certainty. Whether that is a good trade is the whole question — and it depends on which of your dollars are being asked to make it.

Who an annuity fits

Your situation	Why an annuity can fit
Essential expenses exceed guaranteed income	Social Security or a pension does not cover rent, food, and healthcare; an annuity buys the missing floor
You have retired, or are about to	The years just before and after retirement are when lifetime income is priced best per dollar
You will not tolerate portfolio swings	A fixed annuity's balance does not fall with markets, and sleep has economic value
You have maxed out simpler tax shelters	Tax deferral inside the annuity shelters gains you are not touching yet
You worry about overspending	A contract that pays on schedule removes the monthly "can I afford this?" decision

Who should not buy one

The industry's own regulators are blunt about this, and so are we. You are a poor candidate if most of these describe you:

You need the money back. Surrender charges on a typical fixed annuity run five to ten years. Money that might fund a house, a business, or a family emergency should not be committed.
You are young and still accumulating. The tax deferral is available cheaper in a 401(k) or IRA, and you give up decades of market growth for a guarantee you do not need yet.
Your priority is leaving an estate. Life-only payouts die with you. Riders can soften this, but each one shrinks the income — the insurance was never designed to do both jobs.
You were shown it first, not chosen it. If the conversation started with a free dinner seminar or "roll over your 401(k)" before anyone asked about your expenses, the product is being sold, not fitted. FINRA's investor guidance lists the suitability questions a legitimate seller asks before recommending anything.

What it costs you

Annuity costs are mostly invisible, priced into the terms rather than billed. Commission reduces the rate you are quoted. Riders each take a percentage of the account value every year. Surrender charges punish early exit. And the biggest cost is often opportunity: money credited at 4 to 5 percent in a fixed product will trail a stock portfolio over most twenty-year stretches. None of that makes the product bad; all of it means the guarantee has a real price, and a buyer should know what they are paying.

The different product types carry very different price tags for very different promises: the fixed annuity is the cheapest and simplest; the fixed index annuity adds index upside with caps and a longer surrender commitment; the variable annuity is the most expensive and carries real market risk. Understanding the spread between them is the fastest way to avoid paying for features you did not want.

The five checks before buying

If you decide the job fits, run these checks before money moves. They take an afternoon:

Insurer strength: check the carrier's rating with AM Best, and know your state guaranty limits via NOLHGA.
Second opinion: have a fee-only advisor review the contract for an hourly fee. A $500 review against a six-figure commitment is cheap.
The free-look window: most states require 10 to 30 days to cancel for a full refund. Use it to read the actual contract, not the brochure.
Surrender schedule and free withdrawals: know the penalty years and the percentage you can access annually without charge.
The full formula: for index products, participation rate, cap, and spread together — the details are in participation rates explained.

When you are ready to move, the process itself — from choosing the type to funding and the free-look clock — is walked through in how to buy an annuity, step by step.

Alternatives to weigh first

An annuity competes with other ways to solve the same problem. A bond ladder produces scheduled income while keeping principal. A traditional stock-and-bond portfolio with a disciplined withdrawal rate keeps liquidity and upside but carries sequence risk. Delaying Social Security is, dollar for dollar, the cheapest longevity insurance most people can buy — the increase is government-backed and inflation-adjusted, and how it compares to an annuity is worth reading before any purchase. Each alternative leaves a risk open that the annuity closes. Deciding which risk you would rather keep is the actual decision.

Frequently asked questions

At what age should you buy an annuity?: Lifetime-income annuities generally pay more the older you are at purchase, because the insurer expects fewer years of payments. Buyers most often purchase between the mid-fifties and early seventies, near the transition into retirement. Earlier purchases can make sense for deferred growth, but if the goal is the highest lifetime paycheck per dollar, buying at or just before retirement is usually the better trade.
What are the downsides of an annuity?: The main ones are illiquidity (surrender charges and, once income starts, no lump sum at all), complexity (some contracts carry dozens of moving parts), cost (riders and commissions are priced into the terms), inflation (level payments lose buying power), and insurer risk (the guarantee is only as strong as the carrier, with a capped state backstop). None of these is disqualifying alone, but together they mean the money must be money you do not need back.
Are annuities a good investment for retirement?: An annuity is not really an investment; it is insurance against running out of money. As an investment it usually loses to a simple index portfolio over long periods, because you are paying for guarantees. As insurance it does something the portfolio cannot: convert savings into income that cannot be outlived. Judge it by the job, not by comparing returns to stocks.
How much of my savings should go into an annuity?: There is no official number, and anyone quoting one as a rule is guessing. The practical constraint is liquidity: money that may be needed for emergencies, health costs, or opportunities should stay accessible, which usually means only part of a retirement portfolio is a candidate. Many planners suggest thinking in terms of covering essential expenses, not in percentages of net worth.
Can you lose money in a fixed annuity?: The insurer's guarantees cover the credited interest, so the account value does not fall with markets. You can still lose money in three ways: surrender charges if you exit early, inflation quietly eroding a long-held balance, or the small risk the insurer fails — mitigated but not eliminated by state guaranty association limits. Variable and registered index-linked annuities carry real market loss; the fixed ones do not.
Is an annuity better than a 401(k)?: They are not rivals. A 401(k) is a tax-advantaged account that holds investments; an annuity is a contract that can sit inside or outside such an account. Contributing to a 401(k) with any employer match comes first in nearly every plan. An annuity is a later-stage decision about converting some of what you have accumulated into guaranteed income.
Do I have to annuitize to use an annuity?: No. A deferred annuity can simply grow at a fixed or index-linked rate, and you can withdraw or take income without ever converting to a lifetime payout. Annuitization — trading the balance for a guaranteed income stream — is optional in most contracts. If a salesperson tells you otherwise, ask to see the contract's withdrawal provisions.