We sell annuities for a living. Specifically, fixed life annuities. So you should be skeptical of anything we say about their benefits. Good — be skeptical. That's exactly the right instinct when someone who earns a commission is telling you about a product.
So let's start with the cons. The real ones. Not the watered-down versions you see on most annuity websites.
The Cons — No Sugarcoating
You Can't Get Your Money Back
When you buy a single premium immediate annuity, your lump sum is gone. Not gone like "it's invested somewhere and you could sell it." Gone like "the insurance company has it and you have a promise of monthly payments." There's no account balance. No surrender value. No emergency withdrawal option.
If you put $200,000 into a SPIA on Monday and need $50,000 on Friday for a medical emergency, you can't get it from the annuity. The money has been converted into an income stream.
This is the biggest objection we hear. It's valid. Anyone who tells you it isn't is lying.
But here's the context. You should never put all your savings into an annuity. We tell every client: 30–50% maximum. Keep the rest liquid. The portion that goes into the annuity is specifically the money you're converting from "savings" into "paycheck." You wouldn't ask your employer to give you your salary back as a lump sum. This works the same way.
And the irrevocability has an upside that most people don't consider: you can't make a mistake with it. You can't panic-sell in a market crash. You can't lend it to your brother-in-law. You can't get scammed out of it by someone posing as an IRS agent. The money is locked into a monthly payment that shows up no matter what.
Your Heirs Might Get Nothing
With a life-only annuity, payments stop when you die. If you buy at 65 and die at 67, the insurance company received $200,000 and paid out roughly $30,000. Your heirs get nothing from the annuity.
That sounds terrible. And in isolation, it is.
The context: This is a solvable problem. Most of our clients choose a life with 10-year certain or life with 20-year certain option. If you die in the first 10 (or 20) years, your beneficiary receives the remaining payments. The monthly income is slightly lower — maybe 5–10% less than life-only — but you've eliminated the "die early and lose everything" scenario.
There's also a cash refund option that guarantees your beneficiaries receive at least as much as you originally invested, minus what you've already been paid. And for married couples, a joint-and-survivor payout continues income to the surviving spouse.
Inflation Eats Into Fixed Payments
A fixed life annuity pays the same dollar amount every month for life. $1,200 in 2026 dollars will still be $1,200 in 2046 dollars. But $1,200 in 2046 won't buy what it buys today. At 3% average inflation, that $1,200 has the purchasing power of about $660 in today's money after 20 years.
This is a real drawback. We won't pretend otherwise.
The context: The annuity covers your income floor — your essential expenses. It's not your entire financial plan. The other 50–70% of your savings stays invested in a diversified portfolio that can grow with or ahead of inflation. Because your basic expenses are covered by guaranteed income, you can afford to invest that growth portfolio more aggressively than you could without the annuity. Stocks. Real estate. Things that historically outpace inflation by a wide margin.
The annuity handles the floor. The portfolio handles the growth. Together, they handle inflation.
You're Trusting an Insurance Company
Your annuity payments depend on the insurance company staying solvent for the next 20–30 years. If the company fails, your payments could be disrupted.
The context: Insurance company failures are rare, especially among major carriers. New York Life has been paying claims since 1845. MassMutual since 1851. The carriers we work with all hold AM Best ratings of A or higher.
Beyond carrier strength, every state has a guaranty association that protects annuity holders if a carrier fails — typically covering $100,000 to $500,000 depending on the state. For larger amounts, you can split purchases across multiple carriers to stay within guaranty limits.
Is there risk? Technically, yes. Is it higher than the risk of your brokerage account losing 40% in a crash? We'd argue no.
The Pros — And Why They're Overwhelming
Guaranteed Income You Cannot Outlive
No other financial product does this. Not bonds. Not CDs. Not dividend stocks. Not real estate. Not the 4% rule. Only two things guarantee income for life: Social Security and a life annuity.
The average 65-year-old woman will live to 87. One in four will reach 93. One in ten will reach 97. The annuity pays for every single one of those years. Your IRA might not.
We've seen what happens when retirees run out of money. It's not abstract. It's a 84-year-old woman moving in with her daughter because her savings ran out. A SPIA makes that scenario impossible for the income it covers.
Zero Fees
A fixed life annuity charges you nothing in annual fees. No M&E charges. No fund management fees. No administrative costs. No rider fees. The insurance company makes money on the investment spread, not by billing you. Compare that to a variable annuity at 2.5–3.5% annually, or even a typical mutual fund at 0.5–1.0%. Over 20 years, the fee difference alone is worth tens of thousands of dollars. See our complete fee breakdown for the full comparison.
No Market Risk
Your payment doesn't change if the S&P 500 drops 30%. It doesn't change if bonds crash. It doesn't change if your neighbor's hot stock pick goes to zero. The amount the carrier quoted you on day one is the amount that arrives in your bank account every month until you die.
In 2008, retirees with market-dependent income watched their portfolios lose 40% and wondered if they'd have to go back to work. Annuity holders got the same check they always got. In 2020, same thing. In 2022, same thing.
The Tax Advantage Most People Don't Know About
If you buy a SPIA with after-tax money (not from an IRA), the exclusion ratio makes a large portion of each payment tax-free. On a typical purchase at age 65, roughly 55–65% of each payment is considered return of principal and isn't taxed. A CD? 100% of the interest is taxable. Bonds? Same. The annuity's tax treatment is quietly one of its strongest selling points.
Simplicity
After you buy a SPIA, there's nothing to do. No rebalancing. No withdrawal rate calculations. No reading market commentary. No worrying about whether your asset allocation is still right. A deposit hits your bank account every month. You spend it.
This matters more than people think, especially later in retirement. Cognitive decline affects financial decision-making before it affects anything else. A SPIA removes the need for financial decisions entirely. We've had children of our clients tell us this was the best thing their parent ever did — because by age 82, dad couldn't manage the investments anymore, but the annuity checks kept coming.
It Lets You Invest the Rest More Aggressively
This is the pro that financial planners love. When your essential expenses are covered by guaranteed income (Social Security + annuity), the rest of your portfolio doesn't need to be conservative. You don't need 60% bonds to "protect" against a downturn because your bills are already covered.
You can afford to own stocks. Real estate. Even some growth-oriented investments. If the market drops 25%, your groceries are still paid for. You ride out the downturn instead of selling at the bottom.
Putting It All Together
| Factor | The Con | The Context |
|---|---|---|
| Liquidity | Can't access the lump sum | Only annuitize 30–50%. Keep the rest liquid. |
| Heirs | Life-only pays nothing at death | Period-certain and cash refund options solve this. |
| Inflation | Fixed payments lose purchasing power | Growth portfolio handles inflation. Annuity handles the floor. |
| Carrier risk | Depends on insurer solvency | A-rated carriers + state guaranty associations. Split large amounts. |
What the Numbers Actually Look Like
Here's what $200,000 in a fixed life annuity pays in guaranteed monthly income right now, based on current rates from top carriers (life with 10-year certain payout):
| Age at Purchase | Monthly Income | Annual Income | Effective Payout Rate |
|---|---|---|---|
| 60 | $1,042 | $12,504 | 6.3% |
| 65 | $1,178 | $14,136 | 7.1% |
| 70 | $1,372 | $16,464 | 8.2% |
That's guaranteed income with no annual fees, no market risk, and a 10-year beneficiary guarantee. Find a CD or bond fund that does all three of those things at a 7% yield. You won't, because it doesn't exist.
See current rates from all carriers or get a personalized quote for your specific age and amount.
Who Should Buy a Life Annuity
- You're retired or within 5 years of retiring
- You have at least $75,000 you can commit to guaranteed income
- You want your essential expenses — housing, food, healthcare, insurance — covered by money that can't run out
- You're tired of managing investments or worried about making mistakes as you age
- Market volatility genuinely stresses you out
Who Shouldn't
- You're under 55 and still building wealth
- You have less than $100,000 in total savings — you need the liquidity
- You have a terminal diagnosis or significantly shortened life expectancy
- You can't sleep at night knowing the lump sum is gone (even if the math works)
That last one is real. We've turned away clients who were mathematically perfect candidates but emotionally couldn't handle the irrevocability. If it's going to keep you up at night, it's not the right product for you. The peace of mind only works if you actually feel peaceful.
The Biggest Risk of All
Here's what we tell people who are on the fence.
The risk of buying a life annuity is that you give up control of a portion of your savings and the insurance company might — in an extremely unlikely scenario — fail.
The risk of NOT buying a life annuity is that you manage your own withdrawals, the market drops at the wrong time, you spend too much or too little, and at age 86 you're out of money with no way to earn more.
One of those risks is theoretical. The other one happens to real people every day.
Run your numbers. See what guaranteed income your savings could produce. Or call us at 800-747-4201 — we'll give you an honest assessment of whether a life annuity makes sense for your situation. If it doesn't, we'll tell you. We'd rather earn your trust than a commission.
