The fear of outliving your money is one of 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 expected. Careful management of IRA or 401(k) withdrawals reduces that risk, but it does not eliminate it entirely.
One product that promises to remove the guesswork is an annuity. An annuity is a contract you sign with an insurance company that can guarantee you income for the rest of your life. Personal finance commentator Dave Ramsey compares shopping for an annuity to ordering a burrito at Chipotle: these products come in many combinations and can be customized to suit 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 there is genuine appeal in a product that pays you for life. But his overall assessment of annuities is sharply negative, 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 problem is with the price tag attached to the solution. He cites several structural drawbacks that 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 decide to cancel the contract within the first several years, you can face a penalty. Industry data show surrender charges often reach 7% to 8% or more of the annuity value, and the surrender period typically extends for around eight years. That is a significant liquidity risk for retirees who may face unexpected costs.
Second, Ramsey takes aim at fees and commissions. Insurance companies can charge ongoing management fees ranging from 0.50% to as much as 3% annually on variable annuity contracts, and the agents who sell these products earn commissions that are ultimately factored into the product’s cost. Those fees compound quietly over time and chip away at your returns.
Third, fixed annuities can struggle to keep pace with inflation. A payment that felt 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 is most accurate when aimed at variable annuities, the product category with the highest fees and the most moving parts. It is less applicable to simpler structures. Multi-Year Guaranteed Annuities (MYGAs), for example, carry no annual management fees and no market risk. As of mid-2026, top 5-year MYGA rates from A-rated carriers range from roughly 5.00% to 6.35%, compared to approximately 4.15% for comparable 5-year bank CDs. That gap of roughly 1.5 to 2 percentage points widens further once the MYGA’s tax-deferred compounding is taken into account, since CD interest is taxed annually. 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, reflecting genuine demand for guaranteed income. According to LIMRA, total U.S. annuity sales hit a record $464.1 billion in 2025, up 7% year over year. That surge is driven in part by the “Peak 65” demographic wave, with roughly 4.1 million Americans turning 65 each year and fewer of them covered by traditional pensions. LIMRA research also found that 54% of Baby Boomers and Gen X investors worry about outliving their savings, yet fewer than one in five pre-retirees actually own an annuity.
Whether one belongs in your retirement plan depends on what problem you are trying to solve. If you are primarily concerned about outliving your assets, a simple income annuity or MYGA may provide a reliable income floor that supplements Social Security without the heavy fees Ramsey rightly criticizes in older variable products. Fixed Index Annuities (FIAs) offer a middle path: your principal is protected from market losses through a 0% floor, while gains are linked to a market index up to a cap or participation rate, giving you some upside without full market exposure.
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, which would free up capital for growth-oriented investments. The key question is not whether annuities are good or bad in the abstract but 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 update corrects the stated MYGA rate range to 5.00%–6.35% for 5-year contracts from A-rated carriers as of mid-2026, adds LIMRA’s final 2025 annuity sales record of $464.1 billion, includes LIMRA consumer data showing 54% of Baby Boomers and Gen X investors fear outliving their savings, and adds sourced variable annuity fee ranges of 0.50% to 3% annually with surrender charges of 7%–8% or more.
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