There Are Good Reasons to Avoid Annuities, but You Might Want to Buy One Anyway.

Annuities can deliver regular, dependable income for part of our retirement -- or for the rest of our lives. They can even provide income for all our spouses' lives. Still, there are some pros and cons to consider before buying one.

First, understand that an annuity is a contract between you and an insurance company or bank, which promises to deliver regular income to you (or, possibly, a future lump sum amount) in exchange for your paying them a significant chunk of change.

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What you can get from an annuity is often tied to prevailing interest rates. The table will give you an idea of what you might expect these days for $100,000 or $200,000 with a fixed annuity that starts immediately.

Source: ImmediateAnnuities.com, as of Aug. 5, 2026.

In many cases, by paying more or receiving less, you may be able to add features such as annual inflation adjustments. Note that women will generally receive less -- because they're expected to live a little longer.

Pros and cons of annuities

Here are some things to know about annuities:

• Annuities tend to have fees that can be hard to understand. Do your homework before committing any dollars.
• Annuity payments are guaranteed only as long as the issuing company remains solvent, so buy annuities only from highly rated insurers or banks.
• There are many kinds of annuities, ranging from relatively simple fixed annuities to indexed annuities and variable annuities.

Pros

• An annuity can deliver reliable income, which, along with Social Security benefits and other income streams, can help support you in retirement.
• They can protect some of your assets from market volatility.
• Earnings in your annuity will grow on a tax-deferred basis, as they would in a traditional IRA or 401(k).
• Annuities can boost your peace of mind about your financial security.

Cons

• Fees can be high with some annuities.
• Many annuities can be very complex, so make sure you have any you're considering explained to you very clearly.
• You give up a chunk of your nest egg when you buy an annuity. (You may be able to get some of that money back later, if need be.)
• You may be able to set up a similar income stream, though a less guaranteed one, by holding a lot of dividend-paying stocks in your portfolio.
• Distributions will likely be taxable.
• Some annuities can lose value, so choose carefully.

What to do

Annuities are not for everyone, and some are better for some people than others. If you're intrigued, do some research. You may end up wanting to allocate some portion of your nest egg to one or more annuities to increase your dependable income.

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