I'm in the US, I've been suggested obtaining a retirement annuity. For example, putting $100k and waiting 2 years gives about $8300 annually for my lifetime.

  1. Are there any good reasons NOT to do this?? (besides seems almost too good to be true)
  2. Are there any resources or websites explaining the pros and cons of doing this?? Thank you, :) p
  • This is taxed, likely the lowest possible bracket, and a .95% annual (I think) fee applies. This would be in addition to Social Security and any employment I might have.
    – Parkaboy
    Commented Feb 6, 2023 at 23:21
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    It sounds like you are being sold this product [as in, literally a salesperson with commission is suggesting it to you]. Have you gotten any confirmation of the value of the product outside of what this person has provided you? Have you compared it with any other products? Do you currently have any form of retirement planning, and do you have an understanding of the payoff structure of what you already have? Do you have life insurance already? Commented Feb 7, 2023 at 20:07
  • Not everyone needs life insurance, of course. See past questions on that topic.
    – keshlam
    Commented Feb 14, 2023 at 6:12

2 Answers 2


I assume this is an immediate annuity with payments deferred for 2 years. $8300/ year looks reasonable depending on your age. But there are lots of different types of annuities, many of which are very poor financial decisions.

Immediate annuities are reasonable options. The big things to be concerned about

  1. What happens at death. If you die relatively young, you'll get back far less than you paid and you'll have nothing to pass on to heirs. For most people, it's reasonable to trade off that potential for guaranteed income with at least some of your retirement funds. But you may not want to put all of your retirement money into an immediate annuity if you want to take care of others with your estate.
  2. Flexibility. Are you going to have occasional large expenses in retirement? If you have $100,000 in assets, you have the flexibility to spend that to remodel the house when you need to do so in order to age in place or to do other things that require lump sums. ~$700/ month in income doesn't provide that same level of flexibility. Of course, you could always take out a loan but then you're paying interest.
  3. Inflation. Are the payouts indexed to inflation? If not, 20 or 30 years of inflation will do a number on the real value of your guaranteed payments. $8,300 in 2023 dollars will buy a lot more than $8,300 in 2053 dollars.
  4. Spouses. Do you have a spouse or partner that needs to be provided for? If so, you may need an annuity that pays out while either of you are alive.
  5. Provider ratings. Is the company strong? Annuities are insurance contracts so they're not guaranteed by the government. You want to make sure that you're dealing with a highly rated insurer that is going to still be there in 30 or 40 years.
  6. Taxes. If the money to buy the annuity is coming from a tax-advantaged account (401(k), IRA, etc.) and you're buying an annuity within that account, that's pretty reasonable. If you're dealing with an unaffiliated insurance salesman that wants you to pull $100,000 out of a 401(k) to buy an immediate annuity from him, that would produce $100,000 in taxable income for you in the year you purchased the annuity which would be taxed at a relatively high rate. Similarly, if you're buying the annuity from funds in a taxable account by selling a bunch of assets you've been holding forever, you may be hit with a rather large capital gains tax bill. It may be worth paying that tax bill to get the guaranteed income stream but you would definitely want to consider taxes in the calculation.
  • I knew there had to be a catch somewhere. :) Thank you, this is all really helpful information toward deciding something. I will await any future replies and continuing pondering this topic.
    – Parkaboy
    Commented Feb 7, 2023 at 1:40
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    In Canada at least you can buy an annuity without having to remove the capital from your retirement fund. Essentially you buy the annuity and place the annuity in the retirement fund, making each payment taxable but not the capital. I'd be surprised if there wasn't something similar in the US, since converting retirement capital to retirement income is kind of the point of the whole thing. Commented Feb 7, 2023 at 2:55
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    @DJClayworth Same in the US, a 401(k) plan can feature annuities or you can have an individual retirement annuity (under the same IRC section 408 that establishes individual retirement accounts), both of which would be tax deferred.
    – user71659
    Commented Feb 7, 2023 at 3:21
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    Just in case anyone doesn't realize it, an annuity is basically an insurance product. They take a guess at your life expectancy and use that to set the pay-out rate. If they guessed well, you are likely to die without consuming all the principal and interest, and they make a profit. If you last longer than expected, they may take a loss... But on average their guesses are pretty good. And meanwhile they can invest that money and try to get a return on it that covers some or all of what they're paying you. But what you're buying is the guaranteed reliability of the monthly check.
    – keshlam
    Commented Feb 7, 2023 at 6:04
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    ... As always, on a pure odds basis you might do better leaving the money invested and self-insuring. But you're buying some stress reduction; the annuity may not go up with the market but won't go down with it either. Like many other choices, it's a tool; use it if it fits your needs, don't if it doesn't.
    – keshlam
    Commented Feb 7, 2023 at 6:08

You should clarify whether this is a Single Premium Immediate Annuity (SPIA) or not. Those are very simple and possibly good. All the other kinds of annuities are pretty bad.

With a SPIA you pay in one lump sum and have a guaranteed, locked-in payout for the rest of your life. This sounds like what you described, but double-check.

Nevertheless, a SPIA still may not be good for you. This very much depends on your age, wealth, goals etc. You haven't shared anything else about your personal circumstances, but you should in order to get more meaningful advice. What does your current balance sheet look like - assets and debt? How old are you? What income do you have? Etc - more info = better advice.

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