Are Annuities a Good Investment in 2025?

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If you’re planning for retirement, you’ve probably asked yourself: Are annuities a good investment? The short answer is — they can be. Annuities offer guaranteed lifetime income, which can bring peace of mind if you’re worried about outliving your savings. But they also come with drawbacks, like high fees and limited liquidity, that make them less attractive for younger investors or those seeking growth.

Understanding where annuities shine — and where they don’t — is key to deciding if they deserve a place in your portfolio. Let’s break it down.

What Is an Annuity?

An annuity is a contract between you and an insurance company. You pay either a lump sum or a series of payments, and in return, the insurer promises regular payouts — either for a set time or for life.

Think of it as trading some of your retirement savings for predictable income. That makes annuities especially appealing for retirees who want financial security without worrying about market swings.

Types of Annuities

Not all annuities are created equal. Here’s a quick look at the most common types:

How Annuities Work in Practice

Here’s an example: Jill, age 67, puts $100,000 into a fixed annuity with a 10-year “period certain.” She’ll receive $650 per month starting in 30 days.

• If Jill lives 20 years, she collects $156,000 total.
• If she passes away in year six, her heirs receive payments for the remaining four years.

This highlights the pros and cons: reliable income for life, but limited flexibility if your needs change.

Pros and Cons of Annuities

Like most financial products, annuities have benefits and drawbacks.

Pros

• Guaranteed income for life – provides stability and peace of mind.
• Tax-deferred growth – money compounds without immediate tax bills.
• Customizable features – inflation protection, death benefits and joint-spouse payouts available.
• Fits risk-averse investors – less exposure to market volatility.

Cons

• High costs: Average annuity fees range from 1% to 3% annually. That’s far higher than most index funds.
• Liquidity limits: Early withdrawals often face surrender charges of up to 7% or more.
• Complex contracts: Many annuities come with confusing terms that are hard for non-experts to decode.
• Inflation risk: Fixed payouts may lose buying power as costs rise.

Who Should Avoid Annuities?

Annuities aren’t for everyone. You may want to skip them if:

• You need easy access to cash.
• You’re in poor health and might not benefit from lifetime payments.
• You’re younger than 59½ — withdrawals before then come with a 10% IRS penalty.
• You already have reliable retirement income (e.g., Social Security or pensions).
• You want higher-growth investments and can tolerate risk.

Are Annuities a Good Investment for Retirees?

For retirees, annuities can be a smart option. Here’s why:

• No IRS penalty after 59½ – retirees can withdraw without extra taxes.
• Guaranteed lifetime income – removes the risk of running out of money.
• Low market exposure – steady income regardless of stock performance.

It’s no wonder annuity sales are booming. According to LIMRA, Americans bought a record $385 billion in annuities in 2023, driven largely by higher interest rates and retirement security concerns.

Alternatives to Annuities

Annuities aren’t the only way to create a steady retirement income. Here are some common alternatives:

Is Now a Good Time to Buy Annuities?

With interest rates still elevated in 2025, fixed annuities are paying some of the best rates in years. Locking in today’s returns could make sense before the Federal Reserve eventually cuts rates.

• Many insurers are offering fixed annuities above 5%, according to industry surveys.
• Meanwhile, about 68% of retirees worry about outliving their savings, according to the Insured Retirement Institute — making lifetime income more appealing.

Pro Tip: If you’re shopping for an annuity, always compare at least three offers before committing.

Tips Before Buying an Annuity

• Shop around: Rates, terms and features vary widely between insurers.
• Watch fees: Some annuities layer commissions, management costs and riders that can cut returns.
• Work with a fiduciary advisor: A fee-only planner can help you avoid conflicts of interest.
• Match it to your goals: Don’t buy a product you don’t fully understand.

Final Take to GO: Are Annuities a Good Investment?

So, are annuities a good investment in 2025? The answer depends on your situation.

• For retirees who value security and a steady income, annuities can play an important role in a balanced retirement plan.
• For younger or growth-focused investors, the high costs and lack of flexibility make them less attractive.

The best move is to see annuities as one piece of the puzzle, not your entire retirement plan. Combining them with stocks, bonds and other investments helps balance income stability with long-term growth.

Want to keep learning? Check out our guide on the pros and cons of annuities or explore how annuities compare to CDs before you make a decision.

Information is accurate as of Aug. 19, 2025.

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