Annuities Aren’t an Investment And That’s Exactly Why They Work for Some Retirees

Every few months, a new article surfaces asking the same question: ‘are annuities a good investment?’ The comment sections fill up fast. Advisors argue. Retirees share horror stories and success stories in equal measure. And somehow, nobody seems to agree.

Part of the problem is the question itself. Framing annuities as investments sets up a comparison that almost always makes them look worse than they are because they were never built to compete with investments in the first place.

The Wrong Comparison Gets the Wrong Answer

When people ask ‘are annuities a good investment’, they’re usually comparing annuity returns to what they might earn in an index fund over 20 years. And on that metric, the annuity often loses. A broad market index fund has historically outperformed the implied return embedded in most annuity payouts over long time horizons.

But this comparison misses the actual function of the product. You don’t buy homeowner’s insurance because it offers a better return than real estate. You buy it because it protects against a specific, serious risk. An annuity operates on the same logic. It’s not competing with your stock portfolio. It’s insuring against something your portfolio can’t guarantee: that your income won’t stop before your life does.

Once you reframe the question not “is this a good investment” but “does this solve the problem it’s designed to solve” the conversation gets clearer.

What Annuities Are Actually Designed For

Annuities exist to manage longevity risk. That’s the technical term for the risk of outliving your money. It’s one of the most real financial risks a retiree faces, and it’s one that no investment can fully eliminate, because investments fluctuate and retirements are unpredictable in length.

So ‘are annuities a good investment?’ Only if you’re asking whether they’re a reliable income tool for people who need guaranteed lifetime payments. In that context, yes they do exactly what they’re designed to do, consistently.

But if you’re asking whether they’ll beat the S&P 500 over the next two decades, that’s not their purpose. Using that benchmark is like asking whether a ladder is a good car.

When They Work Well

Annuities genuinely serve people in specific situations. If you have a meaningful gap between your fixed monthly income (Social Security, pension) and what you actually need to cover your essential expenses, an annuity can fill that gap with income that doesn’t run out.

They also work well for people who are genuinely anxious about market volatility in retirement. Behavioral economics research consistently shows that retirees who have a guaranteed income floor separate from their investment portfolio make calmer, better decisions about the rest of their money. That psychological stability has real financial value, even if it doesn’t show up in a rate-of-return comparison.

And for people who don’t have a pension, an annuity can serve as a personal pension, a way to convert savings into predictable, lifelong income that arrives whether the market is up or down.

When They Don’t

Asking ‘are annuities a good investment’ also means being honest about when the answer is no.

If you have more income than you need from other guaranteed sources, adding another guaranteed stream might not be the priority. If you have significant health concerns that suggest a shorter-than-average life expectancy, a lifetime annuity may not pay out enough to justify the premium. If you need flexibility and liquidity for the next several years, locking money into a surrender-period product reduces your options.

Annuities are the right tool for specific problems. Like any tool, they’re wrong for problems they weren’t designed to address.

The Comparison That Actually Matters

Instead of asking are annuities a good investment compared to stocks, try asking: what happens to my retirement income if the market drops 30% in the first three years after I stop working? Would guaranteed income change my answer?

Platforms like Retire Wizard are designed to help people work through exactly that kind of scenario not to sell a product, but to clarify whether a particular income tool fits a particular retirement picture.

Final Thoughts

‘Are annuities a good investment?’ They’re not really an investment at all and that distinction isn’t a defense of the product, it’s a clarification of its purpose. For people who need predictable lifetime income and don’t have enough of it from other sources, annuities solve a real problem well. For people who don’t have that problem, or who need flexibility above certainty, they may not be the right fit. The question worth asking is never “are annuities good” in the abstract, it’s whether they’re right for your specific retirement income situation.