If you’ve ever wished you had a pension that paid you a reliable check every single month for the rest of your life, you’re not alone. Millions of seniors are discovering that annuities can offer exactly that kind of security. Whether you’re already retired or getting close, understanding how annuities work could change the way you think about your money and how confidently you spend your retirement years.
What Annuities Actually Are
An annuity is a contract between you and an insurance company. You hand over a lump sum of money, and in return, the insurer agrees to pay you a guaranteed income stream, either for a set number of years or for the rest of your life. Think of it as buying your own personal pension. You’re converting a portion of your savings into a predictable paycheck that shows up whether the stock market is up, down, or anywhere in between.
These products have been around for centuries, and they’ve evolved significantly in recent decades. Today’s annuities are more flexible and varied than ever before. They’re specifically designed to address one of the biggest financial fears seniors face, which is running out of money before you run out of time. If you don’t have a traditional employer pension, an annuity can step in and fill that income gap in a meaningful, lasting way.
Why Seniors Are Choosing Annuities
The numbers tell a powerful story. U.S. annuity sales reached $461.3 billion in 2025, marking the fourth consecutive year of record-breaking sales. More than 4 million Americans are turning 65 every single year during what experts call “Peak65,” and a growing number of those people are retiring without a traditional pension to fall back on. The demand for guaranteed retirement income has never been greater.
There’s also a psychological shift happening among today’s retirees. Financial advisors report that seniors are no longer asking how to maximize their investment returns. Instead, the most common question has become, “How do I make sure I never run out of money?” Research from LIMRA found that 54% of Baby Boomers and Gen X investors are worried about outliving their assets. Annuities exist precisely to eliminate that worry.
Main Types of Annuities
Not all annuities work the same way, and knowing your options before you commit to anything is critical. Different products serve different purposes, from steady growth to immediate lifetime income. The terms, fees, surrender periods, and payout structures can vary significantly from one contract to another. Taking the time to understand how each type functions helps ensure you choose a solution that matches your income needs and long-term goals.
A fixed annuity grows at a guaranteed interest rate and is considered the most straightforward choice. You know exactly what you’ll earn, your principal is protected, and there are no market surprises. Multi-year guaranteed annuities (MYGAs) lock in that fixed rate for a set term, typically three to ten years, and have recently offered rates that often outperform many CDs.
If you’d like some exposure to market growth without putting your savings at risk, a fixed indexed annuity might be a better fit. Your returns are tied to a market index like the S&P 500, but your principal stays protected if the market drops. You won’t capture every bit of upside in a strong market year, but you also won’t lose sleep when markets turn south.
For seniors who need income to start right away, a Single Premium Immediate Annuity (SPIA) lets you deposit a lump sum and begin receiving payments within as little as 30 days. For example, a 67-year-old who deposits $200,000 into a SPIA might receive roughly $1,200 to $1,400 per month for life, depending on current rates and payout structure. If you’re a few years out from needing income, a Deferred Income Annuity lets your money grow first and then start paying you at a future date you select.
One type worth approaching carefully is the variable annuity, which ties your returns to underlying investment accounts. In most retirement situations, high-fee variable annuities add unnecessary cost and risk without providing true downside protection. They often include layered fees for mortality expenses, administrative costs, and optional riders that can quietly reduce long-term performance. Because your principal can still decline with market losses, they may not deliver the stability many retirees are seeking.
Benefits of Annuities
The most significant benefit of an annuity is guaranteed lifetime income. Once your payments begin, they don’t stop. You simply can’t outlive them. That kind of certainty is something a brokerage account or mutual fund will never be able to promise you. When you pair annuity income with your Social Security benefits, you’re building a retirement income floor that covers your essential living expenses no matter what’s happening in the economy. When your core expenses are covered by guaranteed income, the rest of your portfolio can be invested more confidently.
There’s also a meaningful tax advantage that often gets overlooked. The money inside a deferred annuity grows without you owing taxes on it each year. You only pay taxes when you start withdrawing income, and even then, typically only the portion representing investment gains is taxable.
For seniors who’ve already maxed out an IRA or 401(k), annuities have no contribution limits, meaning you can deposit as much as you’d like. Research from Athene shows that compared to CDs or money market accounts, annuities can offer nearly 2% more yield annually, which can make a meaningful difference over a retirement that could last 25 to 30 years.
Annuities also pass directly to your named beneficiaries without going through probate, saving your family significant time, legal fees, and stress. That means your loved ones can often receive the funds within weeks rather than months. It also keeps the transfer private, since probate proceedings are part of the public record. Make sure your beneficiary designations are accurate and up to date so the money goes exactly where you intend.
Drawbacks of Annuities
No financial product is perfect, and annuities are no exception. The biggest concern for most seniors is liquidity. Once you put money into an annuity, it’s not easy to access it quickly. Most contracts come with surrender periods, typically lasting between five and ten years, during which you’ll face significant penalties if you need to withdraw more than a small portion of your balance. That’s why you should never put money into an annuity that you might realistically need in an emergency.
Fees are another area where you’ll want to pay close attention. Fixed annuities tend to carry lower fee structures, but more complex products can chip away at your returns in ways that aren’t always obvious upfront. Always review the full fee breakdown in writing, including rider costs and annual charges, so you understand exactly what you’re paying for and how it affects your long-term income.
There’s also the inflation question worth considering. If you lock in a fixed payment today, that same amount of money will buy noticeably less in 15 or 20 years. Some annuities offer optional riders that increase your payments over time to help offset rising costs, but those add-ons come with an added price tag. Decide whether inflation protection is worth the added cost based on your expected retirement timeline and overall income needs.
Who’s a Good Fit for Annuities?
Annuities aren’t the right choice for everyone, and that’s something any trustworthy financial professional will tell you upfront. They’re tools designed for specific retirement goals, not universal solutions. Your income needs, health outlook, existing assets, and comfort level with market risk all play a role in whether an annuity makes sense for you. You should also avoid putting all of your retirement savings into any single product, including an annuity.
You’re likely a strong candidate if you don’t have a pension, if your Social Security alone won’t cover your basic monthly expenses, or if you’re genuinely worried about making your savings last through a retirement that could stretch three decades. If you value a guaranteed monthly paycheck and peace of mind over chasing market performance, an annuity could be exactly what’s been missing from your retirement plan.
On the other hand, if you already have reliable income sources that cover your essential expenses comfortably, or if significant health concerns might shorten your retirement timeline, the financial math may not work in your favor. An annuity is not the right home for money you might need quick access to.
The best way to think about it is as one important piece of a larger retirement income strategy, not the entire solution. Combining annuity income with Social Security, withdrawals from your IRA or 401(k), and a clear spending plan gives you a much stronger and more resilient foundation overall.
How To Shop For An Annuity
When you’re ready to explore annuities, work with a financial professional who clearly explains how they are compensated. Fee-only financial advisors are required to act in your best interest, while commission-based agents earn more when they sell specific products. Understanding that difference matters when you’re making a major decision with your retirement savings.
You’ll also want to pay close attention to the financial strength of any insurance company you’re considering. The guarantee behind an annuity is only as solid as the company standing behind it, so look for insurers rated at least A- by a recognized ratings agency. Most states also provide consumer protection through a state guaranty association, which typically covers at least $250,000 of annuity benefits if a company were ever to fail.
Always request a written illustration that clearly shows projected income, fees, rider costs, and surrender schedules. Read every contract carefully, understand exactly when your surrender period ends, and make sure the product genuinely matches your income needs. Don’t let anyone rush you into a commitment of this size. The right annuity, chosen thoughtfully, can be one of the smartest financial moves you make in retirement.
Conclusion
Annuities have become one of the most talked-about retirement tools of this decade because they solve a real problem that millions of seniors are facing. If you’re tired of wondering whether your savings will hold out, or if market volatility keeps you up at night, an annuity can provide a financial foundation that allows you to enjoy retirement with more confidence and less stress. They’re not a perfect fit for every situation, but for the right person, the guaranteed income and peace of mind they provide can be life-changing.
As you build your complete retirement income plan, protecting your health is just as important as protecting your savings. Healthcare costs are one of the largest expenses in retirement, and the wrong Medicare coverage can quickly undermine even the strongest financial strategy. The right Medicare plan works alongside your annuity income to create a more secure retirement. For more information about Medicare, please call 866-633-4427 to speak with a Senior Healthcare Solutions Medicare expert.
