Should You Buy an Annuity in 2026?
An annuity is right for you if you need guaranteed income you can’t outlive, principal protection with a competitive rate, or tax-deferred growth beyond your 401(k) and IRA limits. It is not right for you if you need full liquidity, your time horizon is under 3 years, or your retirement plan already has plenty of guaranteed income.
That is the short answer. The fuller one depends on your goals, time horizon, tax situation, and how the annuity fits with Social Security, a pension, and your investment accounts. This guide walks through who should buy an annuity in 2026, who should not, the four scenarios where annuities pay off the most, and the six-step framework we use with our clients to decide.
Quick Answer: Who Should Buy an Annuity in 2026
You should consider buying an annuity if at least three of the following are true:
- You are between ages 55 and 75.
- You have at least $25,000 in non-emergency cash or qualified rollover funds.
- You want guaranteed lifetime income, principal protection, or tax-deferred growth.
- You can leave the money invested for at least 3 years (ideally 5 to 10).
- You already have 6 to 12 months of emergency reserves outside the annuity.
If fewer than three apply, an annuity is probably not your best move right now. Keep reading to see why.
Who Should Buy an Annuity
Annuities solve five specific jobs. If your retirement plan has one of these gaps, an annuity is one of the cleanest ways to fill it.
1. You want income you cannot outlive
If you do not have a pension and you are worried about running out of money in your 80s or 90s, a lifetime income annuity (a SPIA, DIA, or a fixed index annuity with an income rider) converts a portion of your savings into a paycheck that lasts as long as you do. A 65-year-old with $200,000 in a SPIA can currently lock in roughly $1,400 a month for life. That number does not change if the market drops 40%.
2. You want principal protection with a competitive rate
Top MYGA (multi-year guaranteed annuity) rates in May 2026 are paying up to 6.10% on a 5-year contract, compared with the best 5-year CD at 4.10%. Both lock the rate for the full term; the annuity adds tax deferral on top.
3. You are maxing out other tax-advantaged accounts
The 401(k) limit in 2026 is $24,000 ($31,500 if you are 50+). The IRA limit is $7,000 ($8,000 if you are 50+). After those, a non-qualified deferred annuity is the simplest way to keep accumulating without an annual 1099 tax bill on the interest.
4. You want to reduce sequence-of-returns risk
The first 5 years of retirement determine more of your outcome than any other period. If the market drops 30% in your first year of retirement and you are pulling 4% from a portfolio, you have to sell at the bottom to fund living expenses. A lifetime income annuity covering your non-discretionary spending lets your investment account ride out the downturn untouched.
5. You want a death benefit, joint income, or care benefits
Many annuities include a spousal continuation rider, a joint-life income option, or an enhanced benefit that doubles the withdrawal amount if you cannot perform two activities of daily living. CDs and brokerage accounts do not offer any of these.
Who Should NOT Buy an Annuity
An annuity is the wrong tool if any of these describe you.
1. You need full liquidity
Annuities have surrender schedules. If you might need the whole balance in the next 1 to 3 years for a house purchase, a business, or any large planned expense, keep that money in a high-yield savings account or short-term CD.
2. You are under age 55 with non-qualified money
Withdrawals from a non-qualified annuity before age 59½ trigger a 10% IRS penalty on top of ordinary income tax. The math rarely works out unless the money is already inside an IRA or 401(k), where the penalty rules are the same as the underlying retirement account.
3. Your plan already has plenty of guaranteed income
If Social Security plus a pension already covers your essential expenses with a comfortable margin, an annuity is optional rather than essential. The dollars are usually better deployed in a diversified investment account for growth and legacy.
4. Your deposit is under $10,000
Most carriers will not issue a contract below $10,000. Some require $25,000 or $50,000 minimums. For a smaller deposit, a CD or money market account is more practical.
5. You want the highest possible upside
Annuities cap growth in exchange for guarantees. If you are 100% comfortable with full market volatility and your time horizon is 15+ years, a diversified equity portfolio will almost always end up with a larger balance than any annuity. The trade-off is that you have no floor.
Four Real Scenarios Where an Annuity Wins
Scenario 1: Bridging to Social Security
Robert, age 62, is retiring this year but wants to delay Social Security until age 70 to maximize his benefit (a delay that increases his lifetime payment by roughly 77%). He puts $300,000 into an 8-year period-certain SPIA paying about $3,650 per month. The annuity covers his bills from 62 to 70. At 70, the annuity ends and Social Security kicks in at the maximum benefit.
Scenario 2: Joint income for a couple
Mary and Tom, both 70, have $250,000 of non-qualified savings sitting in a taxable money market. They want guaranteed income for both their lives. They put the $250,000 into a fixed index annuity with a joint-life income rider. The rider guarantees about $13,500 a year for as long as either spouse is alive. If Tom dies first, Mary keeps the full payment.
Scenario 3: Preserving principal at 75+
Linda, 76, has $400,000 in a brokerage account that is overweight equities for her age. She does not want to take the income yet, but she wants to lock in growth without market risk. She moves $200,000 into a 5-year MYGA at 6.00%. The contract guarantees the principal plus 33.8% in interest over the 5 years, no matter what the market does. She keeps the other $200,000 in stocks for growth and legacy.
Scenario 4: Tax-deferred accumulation after maxing the IRA
Susan, 58, is in the 24% federal tax bracket. She has already maxed her 401(k) and her Roth IRA for the year. She has another $50,000 she wants to keep for retirement. She buys a 7-year MYGA at 5.85%. The interest compounds inside the annuity with no annual tax bill, growing to about $74,500 by the end of the term. The equivalent CD would have produced taxable interest each year, costing her roughly $4,200 in taxes along the way.
What Type of Annuity Fits Each Goal
The right type depends on the job you need the annuity to do.
SPIA (Single Premium Immediate Annuity)
Best when you want income to start within 12 months and last for life or a set period. You give up access to the lump sum in exchange for a guaranteed monthly check. Simple, predictable, irrevocable. See our SPIA guide for current payout rates.
DIA (Deferred Income Annuity)
Best when you want to lock in lifetime income that starts in 5 to 20 years. Often used as longevity insurance: a 60-year-old deposits $100,000 today, payments start at 80, and continue for life. DIA guide.
MYGA (Multi-Year Guaranteed Annuity)
Best when you want a fixed, guaranteed rate for 3 to 10 years with principal protection and tax deferral. The CD of the annuity world, with about 1.5% to 2.0% more yield on comparable terms. MYGA guide and today’s top MYGA rates.
FIA (Fixed Index Annuity)
Best when you want downside protection with potential index-linked upside, often paired with a lifetime income rider for guaranteed future income. Returns are subject to caps, spreads, and participation rates. FIA guide.
Variable Annuity
Best for a narrow set of buyers who want market participation inside a tax-deferred wrapper with optional income guarantees. Higher fees and full market risk make this the least common recommendation today.
How to Decide: A 6-Step Framework
- Name the job. Are you buying income, principal protection, or tax-deferred growth? Pick one as the primary job.
- Confirm reserves. Do you have 6 to 12 months of cash outside the annuity? If not, build that first.
- Set the horizon. How long can you leave the money invested without touching it? Match the surrender period to that horizon.
- Match the product type. SPIA or DIA for income, MYGA for safe accumulation, FIA for protected growth.
- Compare carriers and rates. Use a marketplace that covers 90+ top annuity companies rather than a single-carrier shop.
- Run the numbers against your overall plan. Confirm Social Security timing, pension election, and your investment account allocation still make sense after the annuity is added.
Common Mistakes to Avoid
- Putting too much in one annuity. Most planners cap annuities at 25% to 50% of total retirement assets to preserve liquidity and growth potential.
- Choosing a contract based on the income rider alone. Riders look great on paper, but the underlying contract rate determines what actually compounds. A high rider with a low cap is often worse than a moderate rider with a strong cap.
- Ignoring the carrier’s financial strength. Stick to carriers rated A- or better by AM Best. A 0.50% higher rate from a B-rated carrier is not worth the long-term solvency risk.
- Buying for tax deferral inside an IRA. IRAs are already tax-deferred. Buying an annuity inside an IRA only makes sense if you want the income guarantee, not the tax deferral.
- Not asking about the surrender schedule. Surrender charges can run 9% in year one, declining 1% per year. Know the schedule before you sign.
When Is the Best Time to Buy?
The best time to buy an annuity is when rates are elevated and your retirement horizon is 5 to 15 years out. May 2026 rates are still historically high, with 5-year MYGAs paying up to 6.10% and 10-year MYGAs near 6.25%. If you are within 10 years of retirement, locking long is usually the right call. See our full guide on when to buy an annuity for the rate environment, age, and tax-year timing details.
How and Where to Buy
Once you have decided that an annuity is right for you, two more questions remain: how do you actually buy one, and where? See how to buy an annuity for the step-by-step purchase process, and the 9 best places to buy an annuity online for the marketplaces we recommend.
Frequently Asked Questions
Should I buy an annuity at age 65?
Age 65 is one of the most common ages to buy an annuity, particularly a SPIA for immediate income or a MYGA for safe accumulation in the early retirement years. Payout rates are most attractive between 65 and 75 because mortality credits start to favor the buyer. If you are exactly 65 and just retiring, focus first on Social Security timing and emergency reserves, then layer the annuity in to cover essential expenses.
How much money do I need to buy an annuity?
Most carriers require a minimum deposit of $10,000. Some set the floor at $25,000 or $50,000 for their best contracts. There is no upper limit other than your state guaranty association coverage, which ranges from $100,000 to $500,000 per carrier depending on the state.
Are annuities a good investment in 2026?
Annuities are not investments in the traditional sense. They are insurance products that solve specific retirement problems: guaranteed income, principal protection, or tax-deferred growth. In a 2026 rate environment with MYGAs paying up to 6.10% and CDs topping out around 4.20%, fixed annuities are a strong fit for the safe-money portion of a retirement plan. They are not a replacement for a diversified investment portfolio.
Can I lose money in an annuity?
You cannot lose money in a fixed annuity or MYGA as long as you hold to the end of the term. Principal and credited interest are guaranteed by the carrier. You can lose money in a variable annuity, which is invested in market subaccounts. You can also lose money in any annuity if you surrender early and the surrender charge exceeds the interest you have earned.
What is the downside of an annuity?
The three biggest downsides are limited liquidity during the surrender period, capped upside compared with direct market investment, and complexity in some FIA contracts. The trade-off is guarantees: principal protection, income for life, or a fixed rate locked in for years. Whether the trade-off is worth it depends on what job you need the annuity to do.
Should I buy an annuity inside my IRA?
Only if you want the income guarantee or the principal protection. The tax-deferral feature is redundant inside an IRA because the IRA itself is already tax-deferred. An IRA annuity makes sense for a retiree who wants part of the IRA balance converted into guaranteed lifetime income; it usually does not make sense for accumulation purposes alone.
How are annuity payouts taxed?
For a non-qualified annuity (one bought with after-tax money), each payment is part return of principal (not taxable) and part interest earnings (taxable as ordinary income). For a qualified annuity (one bought inside an IRA or 401(k)), every dollar of payout is taxable as ordinary income, the same as a regular IRA withdrawal.
What if I change my mind after buying?
Every annuity contract includes a free-look period, typically 10 to 30 days depending on your state. During that window, you can cancel the contract and get your full deposit back with no penalty. After the free-look window closes, you are subject to the surrender schedule for early withdrawals.
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Disclosure: Guarantees are subject to the issuing insurer’s claims-paying ability and the terms of the contract. Product features, availability, and rates can change. Consider your liquidity needs, tax situation, and risk tolerance before purchasing. My Annuity Store is licensed to sell insurance products in 47 states.
