Who shouldn't buy an annuity?

Suze Orman is generally skeptical of most annuities, but she acknowledges that simple, income-focused products can be useful if you lack a traditional pension and need guaranteed lifetime income.

Her detailed views break down into what she avoids, what she accepts, and her main warnings.

What Suze Orman Rejects

• Variable annuities: She strongly advises against variable annuities, calling them expensive and unnecessary.
• Annuities inside retirement accounts: She states it makes little sense to put an annuity inside an IRA or 401(k) because those accounts are already tax-advantaged, making the tax-deferral feature of an annuity redundant while adding high fees.
• High fees and complex contracts: She frequently criticizes products with steep broker commissions (often 5% to 6%), hidden caps, and long surrender periods (5 to 10 years) where you pay heavy penalties to access your money.
• Using insurance as an investment: She warns against using complex indexed or variable annuities as pure growth investments instead of safer or more direct market alternatives.

What Suze Orman Accepts

• Immediate and fixed income annuities: She is open to Single-Premium Immediate Annuities (SPIAs) or basic fixed income annuities if a retiree has insufficient guaranteed income to cover basic living expenses.
• Filling an income gap: If your reliable monthly income (like Social Security) doesn't cover your essential bills, she recognizes that converting a portion of savings into a predictable lifetime paycheck can prevent you from outliving your money.

Her Core Warnings

• Insurers' financial strength: Orman reminds investors that an annuity guarantee is only as strong as the balance sheet of the insurance company backing it. If the insurer fails, your payout is at risk.
• Liquidity loss: Locking your money away in a contract limits your flexibility for emergencies, especially if high surrender charges apply during the early years.

You can read more details directly on Suze Orman's Annuities Guide or explore independent context on Boldin's Retirement Analysis of Suze Orman.

A diversified retirement portfolio using low-cost index funds, bond ladders, and high-yield cash reserves is generally a better and more flexible option than an annuity for growth and liquidity.

Annuities are insurance contracts. They trade away control and liquidity of your money in exchange for a guaranteed lifetime paycheck. What makes an alternative "better" depends entirely on your primary financial goal.

Alternatives Based on Your Goals

• For Market Growth and Lower Fees: A standard IRA or 401(k) invested in broad-market index funds avoids the high administrative fees, commissions, and restrictive surrender charges common with annuities.
• For Predictable Income: A bond ladder (buying bonds that mature at different times) or dividend-paying stocks provide regular cash flow while letting you keep total control over your principal investment.
• For Guaranteed Safety: Certificates of Deposit (CDs) and U.S. Treasury bonds offer principal protection backed by the government without locking you into a complex insurance product.

Pros and Cons At a Glance

Dave Ramsey strongly dislikes annuities and advises most people to avoid buying them. He claims they are a bad way to build wealth for retirement.

Why Dave Ramsey Rejects Annuities

• High Fees: He points out that many annuities, especially variable ones, come with high hidden costs, administrative fees, and heavy sales commissions.
• Low Returns: He argues that annuities offer low rates of return that fail to keep pace with the growth you can get in the stock market.
• Tied-Up Money: He dislikes the strict rules and long surrender periods that penalize you if you try to withdraw your cash early.
• Complexity: He believes these financial products are too confusing and benefit the salesperson more than the buyer. Read an independent overview of how these products work at Investor.gov or explore a breakdown of Dave Ramsey on Annuities.

What He Recommends Instead

• Mutual Funds: He tells investors to put their long-term retirement savings into growth-stock mutual funds instead.
• Simplicity: He prefers straightforward accounts like Roth IRAs and Roth 401(k)s.

His Rare Exception

Ramsey states that an annuity might only make sense if you are completely debt-free and have already maxed out every other tax-advantaged retirement account available to you. Even in that scenario, critics and financial experts point out that his blanket advice often ignores how fixed annuities can protect principal or provide safe, guaranteed income for older retirees. You can read a professional critique of his views from The Annuity Man.

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.

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.