- The first is flexibility. Once you give your money to an insurance company you usually can’t get it back (although some will let you take a one-time withdrawal for emergencies). That’s the reason most planners recommend investing no more than 25% to 30% of your savings in an annuity.
- The second is that payments usually aren’t adjusted for inflation. You can buy an annuity with an inflation rider, but it will lower your initial payout by about 28%.
- The third — and most significant — drawback is that low interest rates will depress your payouts, effectively making annuities more expensive now. Payouts are usually tied to rates for 10-year Treasuries, which are at a record low.
Even with that caveat, annuities might still deliver a better return than you’d get by investing in fixed-income investments, because the longer you live, the more you receive. That’s because annuities also provide mortality