Last updated: March 2026 | Reviewed by: AnnuityJournal Editorial Team
Financial advisors who tell clients to never buy an annuity have usually never sat with an 84-year-old who ran out of money. Longevity is not a hypothetical risk. It is the defining financial challenge of modern retirement, and annuities are one of the few tools built specifically to address it. Here are the concrete reasons people buy annuities, along with the situations where each reason carries the most weight.
1. You Cannot Outlive a Lifetime Income Annuity
This is the fundamental value proposition that no other financial product replicates. A lifetime annuity pays you income for as long as you live, period. Whether you live to 80 or 102, the payments continue. A portfolio, by contrast, can be depleted by a combination of withdrawals, bad sequence of returns, and longevity itself.
The Social Security Administration’s actuarial tables show that a 65-year-old woman has roughly a 1-in-3 chance of living to 90. A couple where both are 65 has better than a 50% chance that at least one spouse reaches 90. Planning for a 25-30 year retirement is not conservative, it is realistic. An annuity that pays for 30 years is cheap insurance against running out of money at year 20.
2. You Want to Protect Against Sequence of Returns Risk
Sequence of returns risk is the retirement killer that most pre-retirees do not fully understand until it is too late. Two retirees with identical portfolios and identical average investment returns can have completely different outcomes if one retires into a bear market and the other into a bull market. The one who starts withdrawing during a down market sells shares at low prices, permanently reducing the base that needs to recover.
A retiree who stepped away in January 2022 watched a standard 60/40 portfolio drop roughly 16% in less than a year while simultaneously taking withdrawals. That math is difficult to recover from. A guaranteed income annuity covering essential expenses removes those expenses from sequence-of-returns exposure entirely. See our retirement income planning guide for how to structure the floor-and-upside approach.
3. You Are Worried About Making Emotional Investment Decisions
Behavioral finance research consistently shows that actual investor returns lag benchmark returns because people buy high and sell low. DALBAR’s annual quantitative analysis of investor behavior has documented this gap for decades. Guaranteed income annuitants do not face this problem because their monthly income does not depend on staying fully invested through a crash. The check arrives regardless of what the S&P 500 does.
This is not a hypothetical benefit. People with guaranteed income floors are measurably less likely to liquidate their investment portfolios during market downturns because they are not dependent on those portfolios for survival. That behavioral stability compounds over decades into meaningfully better outcomes.
4. You Want Guaranteed Growth on Savings You Are Not Ready to Spend
Multi-Year Guaranteed Annuities (MYGAs) serve a different purpose than lifetime income products. They offer guaranteed interest rates for a fixed period, typically 3-10 years, with tax-deferred growth. The rate advantage over comparable CDs is modest but consistent, and the tax deferral is meaningful for higher-bracket savers.
At current rates near multi-decade highs, locking in 5-5.5% for 5 years on money you do not need immediately is a straightforward decision for many near-retirees. See our best current MYGA rates for what top-rated carriers are offering right now.
5. You Have an Income Gap Between Social Security and Your Expenses
The average Social Security retirement benefit pays approximately $22,000-$27,000 per year. The average retiree household spends approximately $50,000 per year, per Bureau of Labor Statistics Consumer Expenditure data. That is a $23,000-$28,000 annual gap that has to come from somewhere.
Pulling that amount from a portfolio year after year creates sequence-of-returns risk and longevity risk simultaneously. Converting a portion of savings into guaranteed income fills the gap without depleting principal that continues to generate returns on the remaining balance. The retiree who closes that gap with a SPIA or income annuity is drawing down savings more slowly than the one relying entirely on portfolio withdrawals.
6. You Want Upside Potential Without Downside Risk
Fixed index annuities (FIAs) credit interest based on the performance of a market index like the S&P 500, subject to a participation rate or cap, with a guaranteed floor of 0%. In a down year, you earn nothing. In a good year, you earn a portion of the gains. Your principal is never reduced by index losses.
This is not the same as investing in the index. The cap limits your upside, and in strong bull markets you will underperform. But for savers who want some market participation without the possibility of a 2008-style 40% loss on money they cannot afford to lose, the FIA structure solves a real problem. See our fixed index annuity guide for exactly how the crediting formulas work.
7. You Want Your Retirement Income to Be Simple and Reliable
Managing a retirement portfolio requires ongoing attention: rebalancing, withdrawal rate management, tax optimization across account types, adjusting for market conditions. Some retirees enjoy this. Many do not, and some are eventually unable to do it well as cognitive capacity declines with age.
An annuity provides income that requires zero management. The check arrives. It does not require you to decide how much to sell, which account to draw from, or whether now is a good time to take a distribution. For retirees who want simplicity or who are concerned about their future ability to manage a complex portfolio, guaranteed income has a quality-of-life value that does not appear in any rate comparison spreadsheet.
8. You Want Principal Protection for a Portion of Your Savings
Fixed and fixed-index annuities from highly-rated carriers provide contractual guarantees that your principal will not decline due to market losses. For savers within 5 years of retirement who cannot afford a 30-40% portfolio loss at the wrong moment, moving a defined portion of savings into a principal-protected vehicle is a legitimate risk management strategy, not a conservative retreat from growth.
The safety of annuities depends on carrier strength and state guaranty associations. For A+ rated carriers, the practical risk of principal loss is extremely low based on historical precedent through multiple economic crises.
When You Should NOT Buy an Annuity
Reasons to buy an annuity are only half the analysis. You should not buy one if your essential expenses are already fully covered by Social Security and a pension, if you have no liquid emergency savings, if you are being pressured to decide immediately, or if the product has fees above 2% annually. For a full honest treatment, see our guide to the common criticisms of annuities and which ones actually hold up.
Frequently Asked Questions
What is the main benefit of buying an annuity?
The primary benefit of a lifetime income annuity is guaranteed income you cannot outlive. For savings-based annuities like MYGAs, the primary benefit is guaranteed growth with tax deferral. For fixed index annuities, the benefit is market-linked growth with principal protection. Different annuity types solve different problems, and the right one depends entirely on what gap you are trying to fill in your retirement income plan.
At what age should you buy an annuity?
For income annuities, the optimal purchase window is typically 60-70. Buying before 60 means locking up money for many years before income begins. Buying after 70 reduces the longevity risk benefit because fewer years remain. For MYGAs, age matters less — they make sense whenever you have savings you want to grow at a guaranteed rate with tax deferral. See our guide to the best time to buy an annuity for age-specific analysis.
Is buying an annuity better than keeping money in a 401(k)?
They serve different purposes and are not mutually exclusive. A 401(k) provides growth and flexibility. An annuity provides income certainty and longevity protection. The common approach is to keep most assets in a 401(k) or IRA for growth and flexibility, while converting a defined portion into guaranteed lifetime income at retirement to cover essential expenses. See our annuity vs 401k comparison for a full breakdown.
Can you lose money in an annuity?
In a fixed or fixed-index annuity, you cannot lose principal due to market performance. You could lose money if you surrender early and surrender charges exceed the earned interest, or if the insurance company fails — which is why carrier ratings matter. Variable annuities can lose value because they are tied to market subaccounts. For most retirees considering fixed or fixed-index products from A-rated carriers, the practical risk of losing principal is extremely low.
