Start With What an Annuity Actually Does
Strip away the sales pitch and an annuity is one thing: a contract with an insurance company that turns a lump sum into income designed to last for a set period or for the rest of your life. That's the core function — converting savings you might outlive into a paycheck you can't. Whether that's valuable depends entirely on your situation, not on how good or bad annuities are 'in general.'
The questions below aren't meant to talk you into or out of anything. They're the ones a good independent advisor asks before ever mentioning a product — because the answer to 'should I get an annuity?' is genuinely 'it depends,' and these are what it depends on. Our annuities FAQ answers the most common quick questions.
The Five Questions
Work through these honestly before anyone shows you an illustration:
- Do your guaranteed income sources — Social Security, any pension — already cover your essential monthly expenses? If yes, an annuity may be unnecessary. If there's a gap, an annuity is one way to fill it.
- Are you worried about outliving your money? Longevity is the risk annuities are built to address. If you have a family history of long life or simply value the certainty, that concern points toward income you can't outlive.
- Do you have enough liquid savings set aside separately for emergencies? Money in an annuity is less accessible during the surrender period. You should never put money you might need soon into one.
- How do you feel about market risk in retirement? If watching your income depend on the market keeps you up at night, the trade-off of steadier income for less upside may be worth it. If you're comfortable riding out downturns, maybe not.
- Do you understand exactly what you'd be buying? If a product can't be explained to you in plain language, that's a reason to slow down, not speed up.
The Honest Downsides
A fair look includes the trade-offs. Annuities typically have surrender periods during which pulling money out early triggers charges, so they're not for funds you'll need soon. Once you convert a lump sum into lifetime income, that money is generally no longer available as a lump sum. And annuities vary enormously in quality and cost — some are excellent, some are loaded with fees, and telling them apart is genuinely hard from the outside.
There's also the tax angle: annuity income counts toward the MAGI that determines your Medicare IRMAA surcharge, so annuity planning and Medicare planning shouldn't happen in separate rooms. We covered that overlap in our IRMAA guide.
How to Get an Honest Answer
The single best protection is working with someone independent who's paid the same regardless of what you choose — including choosing nothing. Our retirement income and annuities pages explain the product types in plain language, and if your answers to the five questions suggest an annuity might fit, the next step is comparing designs across many carriers rather than being shown one.
If your answers suggest it doesn't fit, a good advisor will tell you that too. That's the whole point of independence. Come talk it through with no obligation — the goal is the right answer for you, which is sometimes 'not this.'
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