Is an Annuity a Good Retirement Investment? Here’s What Dave Ramsey Thinks

The fear of outliving your money ranks among the most persistent anxieties in retirement planning. Even a disciplined saver can find that a long life, an unexpected health expense, or a bad sequence of market returns erodes a nest egg faster than anticipated. Careful management of IRA or 401(k) withdrawals reduces that risk, but it does not eliminate it.

One product that promises to remove the guesswork is an annuity: a contract you sign with an insurance company that can guarantee you income for the rest of your life. Personal finance commentator Dave Ramsey has compared shopping for an annuity to ordering a burrito at Chipotle, because these products come in many combinations and can be customized around individual needs.

With an annuity, you can decide:

• How you want to pay for it, whether through a lump sum or a series of payments
• When you want payments to begin
• Whether you want fixed, predictable monthly income or a variable payout tied to market performance

Ramsey acknowledges the genuine appeal of a product that pays you for life. His overall assessment of annuities is sharply negative, though, and his objections are specific enough to be worth understanding before you sign anything.

Why Ramsey is not a fan of annuities

The emotional hook behind annuity marketing is the fear of running out of money, and Ramsey understands why that resonates. His core objection is the price attached to the solution. He points to several structural drawbacks he believes make annuities a poor choice for most people.

The first concern is surrender charges. If you need to access your money early or cancel the contract within the first several years, you face a penalty. Industry data show surrender charges can reach 7% to 10% or more in year one, declining gradually to zero over a period of five to ten years. For retirees who may face unexpected costs, that liquidity constraint carries real weight.

Second, Ramsey takes aim at fees and commissions. Variable annuity contracts stack multiple layers of charges: a mortality and expense risk fee that typically runs 1.1% to 1.4% annually, subaccount expense ratios, administrative fees, and optional rider fees for income or death benefit guarantees. When those layers are combined, total all-in annual costs on a variable annuity commonly fall between 2% and 3.5% or higher. Agents who sell these products earn commissions that are ultimately folded into the product’s cost. Those fees compound quietly over time and chip away at returns.

Third, fixed annuities can struggle to keep pace with inflation. A payment that feels generous in year one of retirement may cover substantially less purchasing power by year fifteen or twenty. Ramsey argues that assets with real growth potential, such as stock mutual funds, are better equipped to preserve buying power over a long retirement.

Finally, Ramsey warns that annuities are simply complex. Contracts can run dozens of pages and include riders, caps, participation rates, and exclusions that are difficult to evaluate without professional help. His standing advice is to avoid financial products you do not fully understand, and annuities often qualify.

That said, Ramsey’s critique lands most squarely on variable annuities, the product category with the highest fees and the most moving parts. It applies far less to simpler structures. Multi-Year Guaranteed Annuities (MYGAs), for example, carry no annual management fees and no market risk. As of mid-August 2026, the highest 5-year MYGA rate tracked across the market reaches approximately 6.30% on a compound basis, while top rates from A-rated carriers approach 5.80%. For context, the best 5-year bank CDs currently top out around 4.50% APY at institutions such as Popular Direct. That gap widens further once the MYGA’s tax-deferred compounding is factored in: CD interest is taxed annually even when you never touch the money, while a MYGA defers that tax until withdrawal. For a retiree focused on principal protection rather than aggressive accumulation, a no-fee fixed annuity functions more like a conservative insurance policy than a growth investment.

Should you buy an annuity?

The annuity market has grown dramatically in recent years, driven by genuine demand for guaranteed income. According to LIMRA’s final 2025 results, total U.S. annuity sales reached a record $464.1 billion, up 7% from the prior year. The fourth quarter alone jumped 14% to $117.2 billion, making it the ninth consecutive quarter above $100 billion and the fourth straight year of record annual sales. That growth is fueled in part by the “Peak 65” demographic wave: 2025 marked the absolute peak of the phenomenon, with a record 4.18 million Americans turning 65 that year alone, an average of 11,400 per day. The Peak 65 Zone spans a four-year period from 2024 through 2027, with roughly 4.1 million Americans reaching retirement age each year across that window, and fewer of them covered by traditional pensions. Indexed products, including Registered Index-Linked Annuities (RILAs) and Fixed Index Annuities (FIAs), represented 45% of total annuity sales in 2025, up from just 24% a decade ago. RILA sales alone rose 20% to $79.6 billion in 2025, ten times the volume recorded a decade earlier, reflecting a broad shift toward products that balance protection with growth potential.

The anxiety behind these numbers is measurable. The Alliance for Lifetime Income found that 54% of Baby Boomers and Gen X investors worry about outliving their savings. A separate 2026 Annual Retirement Study from Allianz Life found that two in three Americans, or 67%, said they were more worried about running out of money than about death, up 10 percentage points from 57% in 2022. Gen Xers registered the sharpest concern at 73%. Yet fewer than one in five pre-retirees actually own an annuity, a gap that points to how unfamiliar many people remain with how these products work.

Whether an annuity belongs in your retirement plan depends on what problem you are trying to solve. If outliving your assets is the central concern, a simple income annuity or MYGA can provide a reliable income floor that supplements Social Security, without the heavy fees Ramsey rightly criticizes in traditional variable products. FIAs offer a middle path: your principal is shielded from market losses through a 0% floor, while gains are linked to a market index up to a cap or participation rate. RILAs take on a modest amount of downside risk in exchange for higher upside caps, a structure that has attracted investors who want more growth potential than a fixed product but more protection than a traditional variable annuity.

If your Social Security benefit is large enough to cover your basic living expenses, you may have less need for an additional guaranteed income layer, freeing up capital for growth-oriented investments. The key question is whether the specific product you are considering solves a real problem in your plan at a cost that makes sense. Working with a fee-only fiduciary advisor, rather than someone earning a commission, is the most reliable way to get a clear-eyed answer.

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Editor’s note: This pass added the Allianz Life 2026 Annual Retirement Study finding that 67% of Americans fear outliving savings more than death (up from 57% in 2022), with Gen Xers at 73%; updated the variable annuity fee description to reflect total all-in annual costs of 2% to 3.5% or more when all fee layers are combined; added that 2025 was the fourth consecutive year of record annuity sales per LIMRA; added RILA 2025 sales of $79.6 billion (up 20% YoY); and added the Peak 65 Zone duration of 2024 through 2027.

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