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When An Annuity Might Make Sense 3 Possible Exceptions to "Avoid Annuities"

I’m Not into Annuities

And I’m not alone. Dave Ramsey, personal finance author and radio show host, isn’t a fan of annuities. He points out annuities have significant expenses that reduce the growth of your money. Plus they have surrender charges on early withdrawals that can limit access to your money in the first few years after you buy one. Another well-known financial advisor, 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 you may have seen Ken Fisher’s TV ads where he says he’ll never sell annuities because anything that can be done with an annuity can be done a better way. He says: “The prevailing tack for selling annuities is the same type of shifty pitch on which every Ponzi scheme is premised.”

The Only 3 Cases When Annuities Might Make Sense

I don’t like annuities because they’re too complex for the average person.  I especially don’t like giving up control of my money. When markets change you’re stuck with what you’ve got. And keep in mind that they’re commissioned insurance sales products, not investments. While I would never buy an annuity, I see some possible rationale in 3 cases.

Case 1: Purchase an immediate annuity to cover non-discretionary expenses. The objective of this case is to lock in a guaranteed income 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 rather than buying long-term care insurance which is expensive, complex and in some cases risky.


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 annuities contracts are lengthy, complex and sellers do not have a fiduciary duty towards you.

For an alternative to annuities, check my 3 part video series on Bond Ladders:  Part 1 The Basics; Part 2 How to Buy a Bond; Part 3 Building a Bond Ladder.

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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