Annuities have a bad reputation. Here's where they earn their place.
Some of the bad rap is earned. But used narrowly, an annuity solves a problem nothing else quite does.
Annuities are one of the most oversold, and most misunderstood, products in finance. Plenty of the skepticism is fair. Some are expensive, complicated, and sold to people who don't need them.
What they're actually good at
Strip away the sales pitch and one thing stands out: an annuity is the only tool that can guarantee income you cannot outlive. Social Security does it. A pension does it. For everyone without a rich pension, an income annuity is the closest thing.
A second, quieter use: a fixed indexed annuity can act as a bond replacement, participating in some market upside with no market losses, for the part of your money you can't afford to see drop.
Where they fit
The mistake is putting everything into one. Used well, annuities are a slice, enough to cover your essentials and steady the plan, while the rest of your money stays invested for growth and legacy.
Using them well
“No market loss” doesn't mean free. Annuities carry costs and surrender terms, and those should be on the table before anything is placed. The right question isn't “are annuities good or bad?” It's “what job am I hiring this money to do?” For guaranteed income, few tools do it better.
For educational purposes only; not individualized investment, tax, or legal advice. Guarantees are backed by the issuing insurer. Consult a qualified professional about your specific situation.
Zach Chiara, CFP®
Zach is a retirement planning specialist who helps people within ten years of retirement bring income, investments, taxes, and wealth protection into one connected plan.
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