Annuities are often considered a financial mistake due to high fees (sometimes 2-3% annually), low liquidity that ties up capital for years, and complex, confusing structures. They often offer capped returns compared to market investments, risk losing purchasing power to inflation, and can carry high commissions for agents, potentially placing company interests above the buyer.
Annuities have extremely high commissions and fees. Annuities are generally illiquid for many years. Agents who sell annuities have conflicts of interest. You can expect limited ongoing advice when you buy an annuity. Many annuities have misleading riders. Buying an annuity limits your investment options.
Suze Orman is right to warn about some annuities: high fees, surrender charges, and confusing bells & whistles. But she's often speaking to a national audience with broad strokes.
Ramsey's Clear Warning on Fixed Index Annuities (FIAs)
FIAs are complex insurance contracts with high fees, lengthy surrender periods, and caps on upside growth that often make them better for the advisor selling them than the client buying them. Ramsey's stance couldn't be clearer.
With annuities, you transfer the risk to the life insurance company that issues the product. You are transferring the risk for the primary four things that make up my acronym PILL, which I created and trademarked. Those are the four reasons annuities exist.
Suze Orman's Preference: The CD-Type Annuity
Here's why: Guaranteed Interest for the Entire Term: Unlike traditional fixed annuities that may have fluctuating interest rates, a CD-type annuity guarantees the same interest rate for the entire length of the surrender period.
Nine Reasons to Never Buy Annuities
So, many wealthy people use annuities to protect themselves in our litigious world, but they also buy them for lifetime income streams. Many rich people buy annuities for their spouses, kids, or grandkids.
Why buying an annuity at age 70 could make sense. If you're seeking guaranteed income you can't outlive, an annuity offers just that. The older you are when you buy an immediate or deferred income annuity, the larger your monthly payments tend to be.
Using figures from the U.S. Federal Reserve's Survey of Consumer Finances (updated to 2022 but released in 2025), only about 2.5% of all Americans actually have $1 million or more saved in their retirement accounts—a figure that might shock anyone used to seeing financial media and their depictions of average Americans ...
If you inherit a nonqualified annuity and fail to act, the IRS may impose the five-year rule. You will be required to withdraw the entire balance within five years of the original owner's death. Understand the rules, act early and talk to a financial advisor if you're not sure what to do.
Whether a 401(k), IRA, personal portfolio, or a mix of strategies is better than an annuity depends on your financial goals, risk tolerance and income needs. Most retirees will benefit from a diversified approach that combines different income sources for flexibility and security.
Some financial advisors promote annuities because they offer tax deferral, guaranteed income, or principal protection. But while these features can support retirement planning, annuities often carry high fees and commissions that can influence recommendations.
Don't get caught by surrender charges. Withdrawing your money from an annuity before it has matured might subject you to fees, known as surrender charges, as well as other administrative fees and acquisition costs.
"It never makes sense for tax purposes," she said. Instead of locking money into an annuity or insurance-based investment product, Orman encouraged focusing on other strategies. She suggested continuing to invest in dividend-paying stocks, growth stocks, or value stocks.
High fees and hidden costs are key reasons why annuities are bad investments for some. Complex contracts make them hard to understand. Liquidity restrictions can limit access to your money. Unsuitable products sold by aggressive agents highlight why you should beware of annuities.
The 10/10 Rule concerns the standard non-forfeiture values on all annuities: fixed, indexed and variable. 3. This rule limits surrender charges to 10 years and 10 percent in the first year of the annuity, for states using the rule.
Financial advisors recommend starting annuity payments between the ages of 70 and 75. Immediate annuities: These annuities make more sense to purchase when you are near or at retirement because the payout usually starts right away.
For example, the average 70-year-old male with a $500,000 annuity can expect a monthly payment of $3,655 right now, while the average 60-year-old male can expect a monthly payment of $2,953. Your gender: Men and women typically receive different payment amounts, as women tend to live longer than men, statistically.
Annuities offer tax-deferred growth, but taxes are eventually owed on withdrawals. Qualified annuities (pre-tax funds) are fully taxable upon withdrawal. Nonqualified annuities (after-tax funds) involve taxing earnings before original contributions.
Are you curious about fixed index annuities and wondering why **Dave Ramsey doesn't recommend them**? You're not alone. These financial products can offer retirement income with market-linked growth and principal protection—but they're also misunderstood.
Financial planners also know that clients' needs and circumstances can change quickly — and once you're in an annuity contract, it's not easy to get out.