Last updated: March 2026 | Reviewed by: AnnuityJournal Editorial Team
The loudest voices against annuities usually have something in common: they’re either selling something that competes with annuities, or they’ve conflated one bad product with an entire category. The criticism is sometimes valid and often overblown. Here’s an honest breakdown of why people say to avoid annuities — and when they’re right versus when they’re not.
The Legitimate Criticisms
Variable annuities with high fees are genuinely bad for most people
The single most valid criticism of annuities targets variable annuities sold with high expense ratios. A variable annuity with a 2.5–3.5% annual fee — including mortality and expense charges, subaccount fees, and rider charges — is a serious drag on long-term returns. You’re taking market risk (the value fluctuates with the subaccounts) while paying fees that make consistent outperformance nearly impossible.
Dave Ramsey, Suze Orman, and most fee-only financial planners who criticize annuities are largely talking about this product. They’re not wrong about variable annuities with high fees. The mistake is generalizing that critique to fixed annuities, MYGAs, and FIAs — which have entirely different fee structures and risk profiles.
Surrender charges punish people who need liquidity
Annuity surrender periods — typically 5–10 years — penalize early withdrawals with charges that can start at 8–10% in year one. Buyers who didn’t understand this, or who bought with money they couldn’t afford to lock up, have paid those penalties. The criticism is legitimate when agents sell surrender-period products to people with inadequate liquid assets elsewhere.
The solution isn’t to avoid annuities — it’s to buy them with money you genuinely won’t need during the surrender period, and to maintain separate liquid assets for emergencies.
Some agents oversell annuities because commissions are high
Annuity agents typically earn 4–8% commissions on sales. That’s a real incentive that has led to unsuitable sales — particularly to elderly buyers who didn’t need or understand the product. Regulatory scrutiny has increased, and the DOL fiduciary rule has tightened standards, but incentive misalignment is a real issue in the industry. See our DOL fiduciary rule guide for what protections currently apply.
The Criticisms That Don’t Hold Up
“You can do better in the market”
Maybe. Over a long time horizon, a 100% equity portfolio has historically outperformed fixed annuity products. But this argument ignores three things:
- Sequence of returns risk: A bad market in the first 3 years of retirement can permanently impair a portfolio in ways that a guaranteed income floor prevents entirely.
- Behavioral risk: Most investors don’t actually achieve market returns because they panic-sell during downturns. Guaranteed income annuitants don’t face this problem — their income doesn’t depend on staying invested.
- Longevity risk: A portfolio can run out. A lifetime annuity can’t. “Doing better in the market” requires living long enough to benefit — and not outliving your money.
“Annuities are too complicated”
Variable annuities with multiple rider options and subaccount choices can be genuinely complex. A MYGA is not complicated. It works exactly like a CD — a fixed rate for a fixed term, guaranteed. The complexity criticism applies to a subset of products, not the category.
“The insurance company keeps your money when you die”
This only applies to a life-only SPIA with no period certain or death benefit rider. Most modern annuities include death benefits, period-certain options, and/or account value that passes to beneficiaries. A MYGA or FIA passes the full remaining account value to named beneficiaries outside probate. See our annuity death benefit guide for the full picture.
“Inflation will destroy the fixed payments”
True for life-only SPIAs — fixed payments lose purchasing power over time at any positive inflation rate. But this critique ignores that Social Security (also a fixed payment stream) has COLA adjustments, that most retiree spending actually decreases in real terms after age 75, and that the role of an annuity is to cover essential expenses — not total spending. A diversified retirement plan has an annuity for the floor and a growth portfolio for inflation protection.
When You Actually Should Avoid Annuities
The critics are right in specific situations:
- You have no liquid emergency fund: Don’t buy an annuity with your only savings. The surrender period will hurt you.
- You’re being sold a variable annuity with fees over 2%: The math rarely works in your favor. Ask for a fee-only analysis first.
- Your essential expenses are already fully covered by Social Security and a pension: If you already have guaranteed income that covers your needs, adding more guaranteed income at the expense of growth and flexibility may not be worth it.
- You have serious health issues that may shorten your life: Lifetime income annuities favor people who live long. A shorter life expectancy changes the break-even math significantly.
- You’re under significant financial sales pressure: Any legitimate annuity purchase comes with a free look period — typically 10–30 days — to cancel without penalty. If an agent is pressuring you to decide immediately, walk away.
The Bottom Line
The blanket “avoid annuities” advice is lazy financial guidance. It conflates an expensive, complex variable annuity from 2003 with a straightforward 5-year MYGA earning 5.4% today. They’re different products solving different problems.
A better framework: avoid bad annuities (high fees, long surrender periods on money you need, unsuitable products sold by commission-motivated agents). Consider good annuities (MYGAs, FIAs with reasonable terms, SPIAs covering income gaps) when they solve a specific problem in your retirement income plan.
The people who benefit most from annuities are those who’d otherwise run out of money at 87 or panic-sell their entire portfolio at the bottom of a bear market. The risk of living too long or making emotional investment decisions in retirement is real — and it’s exactly what a well-chosen annuity addresses.
Frequently Asked Questions
Why does Suze Orman say to avoid annuities?
Suze Orman’s annuity criticism focuses primarily on variable annuities with high fees and complex riders — a legitimate critique of a specific product type. She has acknowledged that certain fixed annuities can be appropriate for some retirees. Her blanket “I hate annuities” position has softened over the years as the product landscape has evolved. The strongest version of her argument applies to commission-heavy variable products sold to people who don’t understand them — not to MYGAs or straightforward FIAs.
Why does Dave Ramsey say to never buy an annuity?
Dave Ramsey’s objection is primarily philosophical: he believes long-term equity investing always wins, and annuities sacrifice returns for guarantees he considers unnecessary. His framework works for people with long time horizons, strong financial discipline, and no need for guaranteed income. It doesn’t account well for sequence-of-returns risk, longevity risk, or the behavioral reality that most investors don’t maintain equity exposure through market crashes without capitulating.
Are there annuities without surrender charges?
Yes — SPIAs (Single Premium Immediate Annuities) have no surrender period. You give up control of the principal in exchange for immediate lifetime income, but there are no surrender charges. Some carriers also offer “no-surrender” or “liquid” annuity products with shorter or waived surrender periods, typically at the cost of slightly lower rates.
What is the safest type of annuity?
A MYGA from an A+ rated carrier is the closest thing to a risk-free annuity product — guaranteed rate, guaranteed principal, no market exposure, backed by a financially strong insurance company and your state’s guaranty association. See our best fixed annuity companies for current A+ rated options and rates.
Is it worth buying an annuity in 2026?
For the right buyer, yes — particularly with current MYGA rates near multi-decade highs. The question isn’t whether annuities are “worth it” in the abstract; it’s whether a specific annuity solves a specific problem in your retirement income plan. If you have an income gap, longevity concern, or need for principal protection, a well-chosen annuity addresses those needs more efficiently than most alternatives at current rates. See our best current MYGA rates for comparison.
