What does Suze Orman say about fixed annuities?
Suze Orman is generally cautious about annuities, but she is more accepting of fixed and immediate options used for guaranteed income outside retirement accounts compared to high-fee variable products.
Suze Orman’s View on Fixed Annuities
- Income Over Speculation: She acknowledges that fixed, indexed, or immediate annuities can serve a practical purpose if your primary goal is securing a guaranteed income stream that you cannot outlive.
- Avoid Inside Retirement Accounts: She strongly warns against putting any annuity inside a tax-advantaged retirement account like an IRA or 401(k) because it offers no extra tax benefits and complicates withdrawals.
- The Target is Non-Qualified Money: She is neutral or open to fixed and indexed annuities when purchased using non-qualified money (dollars already taxed outside retirement accounts) purely for tax-deferred growth and structured income.
Core Cautions & Pitfalls
- High Fees in Other Products: Her harshest criticisms target variable annuities, which often carry high annual fees (2.5% to 3.5%+ per year) that destroy returns over time. Fixed options are simpler and usually lack these explicit annual fee loads.
- Surrender Charges: She warns against locking money into long surrender periods (often 6 to 10 years) where early withdrawals trigger heavy penalties that can erode principal.
- Ordinary Income Tax: Withdrawals from fixed annuities are taxed as ordinary income rather than lower capital gains rates, a drawback she emphasizes when comparing them to standard mutual funds.
You can read more about her core framework on the Suze Orman Annuities Resource page.
What type of annuity does Suze Orman recommend?
Suze Orman generally dislikes most annuities, but she is open to Single-Premium Immediate Annuities (SPIAs) and simple fixed-income or deferred income annuities if a retiree needs a guaranteed baseline income.
Types She May Accept
- Single-Premium Immediate Annuities (SPIAs): She has softened her stance on these, noting they act like a "pension" to help retirees cover essential fixed expenses and avoid outliving their money.
- Deferred Income Annuities (DIAs): She is somewhat favorable toward these for long-term "longevity insurance" where payments start much later in life (like age 80).
- Single Premium Fixed/Deferred Annuities: Considered acceptable only if funded with after-tax (non-qualified) money for basic, predictable growth.
Types She Strongly Advises Against
- Variable Annuities: She heavily criticizes these due to high fees, steep broker commissions, mortality charges, and poor tax efficiency.
- Annuities Inside Retirement Accounts (IRAs/401k): She says putting any annuity inside a tax-deferred account makes little sense because you pay high fees for tax deferral you already have.
For more details on her philosophy, you can review the breakdown on Suze Orman's Official Annuities Resource.
What does Warren Buffett say about fixed annuities?
Warren Buffett has not made specific public endorsements of retail fixed annuities for individual investors, but his general investment philosophy and Berkshire Hathaway's business operations offer clear context on how he views them.
General Stance on Annuities
- Selling vs. Buying: Buffett is on the "other side" of the table. Berkshire Hathaway subsidiaries (like National Indemnity or other insurance units) sell and reinsure risk-backed products, meaning Buffett likes issuing insurance and annuities to make a profit, rather than buying retail annuity contracts for his own portfolio.
- Dislike of Complexity: Buffett famously prefers simple business agreements. He has stated that he likes dealing with people where a one-page contract suffices, noting that if a contract requires 50 pages of legalese, it raises red flags. Many retail annuities—especially complex indexed or variable products—feature dense, multi-page fee structures and rules.
- The "Never Lose Money" Rule: Financial marketers often map Buffett’s famous rule (Rule No. 1: Never lose money; Rule No. 2: Never forget rule #1) onto fixed and guaranteed products. While fixed-rate deferred annuities or MYGAs (Multi-Year Guaranteed Annuities) provide principal protection similar to a Certificate of Deposit (CD), Buffett himself does not pitch or advise everyday consumers to buy them.
How much does a $300,000 fixed annuity pay per month?
A $300,000 fixed immediate annuity pays between $1,700 and $2,100 per month for a typical retiree starting payments at age 65.
The exact payout depends heavily on your age when you start withdrawals, gender, and the chosen payout structure. Because women have a longer average life expectancy, their monthly payments are slightly lower than men's of the same age.
Current estimated single-life monthly payouts for a $300,000 immediate fixed annuity include:
Monthly Payout Estimates by Age & Gender (Single-Life Only)
| Age at Purchase | Male Monthly Payout | Female Monthly Payout |
|---|---|---|
| Age 60 | ~$1,755 – $1,935 | ~$1,683 |
| Age 65 | ~$1,911 – $1,980 | ~$1,832 |
| Age 70 | ~$2,160 – $2,280 | ~$1,837 – $2,192 |
| Age 75 | ~$2,497 – $2,640 | ~$2,350 |
How Payout Structures Affect the Check
The figures above assume a Single Life Only structure, which provides the maximum possible monthly benefit but stops immediately upon your death. Opting for financial protections for your family will lower your monthly amount:
- Period Certain (e.g., 10 or 20 Years): Guarantees payments to your beneficiaries if you pass away during the designated window. For example, adding a 10-year certain period at age 65 trims the monthly check by about $20 to $50.
- Joint and Survivor: Continues paying a surviving spouse for the rest of their life. This typically reduces the monthly payout by roughly 10% to 15% depending on your spouse's age.
- Deferred Annuities: If you buy a $300,000 fixed deferred annuity (e.g., investing at age 55 but waiting until age 65 to receive income), your monthly payout will be significantly higher because your principal accumulates guaranteed interest over time before distributing.
To get precise terms based on your exact birthdate and location, you can request live calculations using tools like the Charles Schwab Income Annuity Estimator or the Blueprint Income Quotes Calculator.
What does Dave Ramsey say about fixed annuities?
Dave Ramsey says that fixed annuities are a bad deal, calling them overpriced, low-yielding, and inferior to growth stock mutual funds.
Core Criticisms from Dave Ramsey
- Low Returns: He states that fixed annuities "don't pay squat" and compare poorly to the 10% to 12% historical average returns of growth stock mutual funds.
- High Fees: He warns that hidden or high internal fees eat away at your returns, often conflating fixed products with costly variable annuities.
- Illiquidity: He highlights strict surrender charges that lock up your money for years if you need early access to cash.
- Glorified CDs: He frequently dismisses basic fixed products like Multi-Year Guaranteed Annuities (MYGAs) as just low-interest savings vehicles or glorified certificates of deposit.
Where Critics Disagree
Many financial planners note that Ramsey’s blanket advice applies best to younger accumulators or high-fee variable annuities, but falls short for retirees. Critics point out that:
- Zero Explicit Fees: Standard fixed annuities or MYGAs typically feature zero annual management fees.
- Principal Protection: They protect your principal from market downturns, functioning more like a bond alternative than a volatile stock investment.
Ask Suze: What's wrong with annuities?
What is the best fixed annuity right now?
The best fixed annuity rates reach up to 6.95% for a 7-year term, though top headline rates often use simple interest rather than compound annual growth.
Multi-Year Guarantee Annuities (MYGAs)—which function like tax-deferred certificates of deposit—currently offer the highest yields across various terms from top providers. You can compare broad market options and current quotes through platforms like Annuity.org.
Top Fixed Annuity (MYGA) Rates by Term
- 3-Year Term: Revol One (DirectGrowth MYGA) or Mountain Life at 6.10% (Ratings: B++ and B-)
- 5-Year Term: Knighthead Life at 6.55% (Simple interest, Rating: A-)
- 7-Year Term: Knighthead Life at 6.95% (Simple interest, Rating: A-)
- 10-Year Term: Oxford Life at 6.35% (Rating: A)
Key Considerations Before Buying
- Simple vs. Compound Interest: A high headline rate paid as simple interest may yield less over time than a slightly lower compound interest rate. Always calculate the effective annual yield.
- Financial Strength Ratings: High yields often come from smaller or lower-rated insurance carriers (B++ or A- ranges). If financial security is your main goal, top-tier carriers like New York Life or Allianz offer lower rates but hold superior A+ or A++ financial strength ratings.
- Liquidity: Most MYGAs allow 10% penalty-free withdrawals annually after the first year, but withdrawing more during the surrender period triggers fees.
What is the downside of fixed index annuities?
The primary downside of a fixed index annuity (FIA) is that your growth potential is heavily capped, meaning you miss out on full stock market gains while still facing high fees, strict surrender periods, and complex contract terms.
Major Drawdowns and Limitations
- Limited Upside Potential: Returns are restricted by caps, participation rates, and spreads set by the insurance company. If the linked market index rises by 12% in a year, your credited return might be capped at 5% or 7%.
- Exclusion of Dividends: FIAs track index price movements but generally do not include stock dividends. Missing out on dividend reinvestment significantly reduces long-term performance compared to directly owning an index fund.
- Surrender Charges and Lock-ups: Withdrawing money beyond your penalty-free annual allowance (usually 10%) during the surrender period—which often lasts 7 to 10 years—can trigger steep early withdrawal penalties from the insurer and federal taxes.
- Misleading Sales Pitches: Aggressive marketing often pitches "market participation with zero downside". In reality, these are conservative insurance products designed to compete with CDs, not high-growth stock investments.
- Complex Fees and Optional Riders: While base contracts may not have obvious annual fees, adding optional riders (such as guaranteed lifetime income or death benefits) deducts extra fees from your accumulation value.
- Insurer Discretion: Insurance companies can change caps, participation rates, and renewal terms upon contract anniversary dates, meaning your future returns can drop at the discretion of the provider.
You can learn more about structural definitions and terms from industry guides like Kiplinger or view product evaluations on The Annuity Man.
Do millionaires use annuities?
Yes, many millionaires and high-net-worth individuals use annuities, but they buy them for risk management, tax strategy, and asset protection rather than basic income replacement.
While middle-class retirees often buy annuities purely to cover fundamental living expenses, wealthy investors utilize specific contracts to solve advanced financial challenges.
Why Millionaires Buy Annuities
- Bypassing Contribution Caps: Traditional retirement accounts like 401(k)s and IRAs limit annual savings. Once those are maxed out, high earners use non-qualified deferred annuities to store large sums of money with unlimited tax-deferred growth.
- Asset Protection from Creditors: In states like Florida and Texas, annuity products offer strong legal shields. They protect accumulated capital from lawsuits, court judgments, and creditor seizures during severe financial or business liability.
- Tax-Efficient Compounding: Instead of paying yearly taxes on standard certificates of deposit (CDs) or taxable brokerage interest, wealthy clients use Multi-Year Guarantee Annuities (MYGAs) to let interest compound tax-free until withdrawal.
- Estate and Legacy Planning: Millionaires can add specific riders to pass remaining contract values directly to beneficiaries. This avoids the slow, public probate process and simplifies asset distribution for heirs.
- Long-Term Care Management: Wealthy retirees often use hybrid policies tied to the Pension Protection Act. These combine annuities with long-term care riders to pay for potential medical or nursing home costs without liquidating core investment portfolios.
The Drawbacks for High-Net-Worth Buyers
- Illiquidity: Annuities lock up capital behind strict surrender periods and early withdrawal penalties.
- Fees: Certain variable or complex products carry heavy administrative and management charges.
- Tax Status: Withdrawals are taxed as ordinary income rather than lower capital gains rates.
What are six Warren Buffett quotes that every retiree should live by?
Six core Warren Buffett quotes provide valuable guidance for managing money and mindset in retirement.
1. On Long-Term Horizon
"Our favorite holding period is forever."
- What it means: Retirement can last thirty years or more, meaning your money still needs growth.
- Retiree takeaway: Do not completely abandon growth assets just because you stopped working.
2. On Market Panic
"Be fearful when others are greedy and greedy when others are fearful."
- What it means: Market drops cause emotional selling, while market booms cause over-excitement.
- Retiree takeaway: Avoid panic-selling your portfolio during a market downturn.
3. On Price vs. Quality
"Price is what you pay. Value is what you get."
- What it means: Buying a weak asset just because it looks cheap is usually a mistake.
- Retiree takeaway: Focus on quality and true worth over chasing low-priced bargains.
4. On Simplicity and Risk
"Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."
- What it means: Investments should be stable enough that you do not need to check them daily.
- Retiree takeaway: Keep your retirement portfolio simple and stress-free.
5. On Hidden Costs
"Investors should remember that excitement and expenses are their enemies."
- What it means: High fees and trendy trading eat away at your savings.
- Retiree takeaway: Minimize investment fees and avoid chasing complex, exciting trends.
6. On Personal Wealth
"Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends."
- What it means: True success in life is measured by relationships, not material items.
- Retiree takeaway: Invest your time into family, health, and community rather than accumulating more stuff.
Why do people say not to invest in annuities?
People often advise against investing in annuities because they typically feature high fees, limited access to your cash, and complex contract structures that can benefit the sales agent more than the buyer.
Major Disadvantages of Annuities
- High Fees and Commissions: Upfront sales commissions can reach 7% or higher, and ongoing management, administrative, and rider fees can exceed 3% annually for variable products, significantly eroding returns.
- Lack of Liquidity: Annuities lock up your money for years. Taking out money past the penalty-free limit (usually 10% per year) during the surrender period—which can last 5 to 10 years—triggers steep surrender charges. Early withdrawals before age 59½ also incur a 10% IRS tax penalty.
- Inflation Risk: Standard fixed annuity payouts do not automatically adjust for inflation. Over a long retirement, inflation steadily reduces the purchasing power of those fixed monthly checks. Adding an inflation rider usually lowers your starting payout considerably.
- Product Complexity: Contracts are notoriously difficult to understand, filled with confusing rules, caps, participation rates, and hidden restrictions that make it hard to compare products or know what you are truly buying.
- Loss of Principal and Heirs' Rights: With many lifetime income annuities, if you pass away early, the insurance company keeps the remaining balance unless you purchase a specialized (and more expensive) death benefit rider. Furthermore, gains are taxed as ordinary income rather than receiving a stepped-up basis for heirs.
- Inflexibility: Once you convert a large sum into an immediate or lifetime income annuity, you lose control of that principal and cannot easily change your plan if your financial needs shift.
As highlighted by Forbes, you may want to avoid them if you already manage your assets well, have sufficient independent retirement income, or prefer simpler, lower-cost alternatives like broad-market index funds. Critics in communities like Reddit's FinancialPlanning often point out that while annuities can insure against outliving your money, the structural costs make them a poor choice for general wealth accumulation. Detailed analysis on High Pass Asset further underscores how high commissions and restrictive riders create strong conflicts of interest for advisors.