"I hate annuities" is one of the most repeated, and least examined, opinions in personal finance. The truth is more useful: bad annuities are bad, and the right annuity, used for the right job, solves a problem almost nothing else can, guaranteed income you cannot outlive.
The problem annuities solve
Pensions used to answer one question: "How do I know I will not run out of money?" Most workers no longer have one. A fixed indexed annuity (FIA) or income annuity re-creates that paycheck, turning a lump sum into income for life.
What a modern FIA actually does
- Links growth to a market index with a 0% floor, so a down year credits zero rather than a loss
- Caps or participation rates limit the upside in exchange for that protection
- Optional income riders guarantee a rising or level lifetime payout
It is not an investment in the market, you are not buying shares of an index, and guarantees rest on the claims-paying ability of the issuing insurer. Used correctly, it covers your essential expenses so the rest of your portfolio can stay invested for growth and legacy.
When an annuity fits
Annuities make sense when you value certainty over liquidity for a portion of your money, when you are worried about longevity, or when a market crash early in retirement would derail your plan (sequence-of-returns risk). They are a tool, not a religion, and rarely should more than a portion of your assets go into one.
When to be cautious
Watch for high fees, long surrender periods, and riders you do not need. Every guarantee has a cost; the job is to make sure the guarantee is worth what you pay for it.