Annuities at 65 and Older: What to Know Before You Buy

By Marc Gilman

Questions? Call (800) 927-9326 or email

Key Takeaways

• Roughly 4 million Americans turn 65 every year, and many will hear an annuity pitch. Being pitched is not the same as needing one.

• At 65 and older, an annuity may make sense for two reasons: guaranteed lifetime income to pair with Social Security, or protecting a portion of your savings from market losses.

• The older you are, the shorter the commitment should usually be. A long surrender period that suits a 55-year-old can be a poor fit for someone in their late 70s.

• Annuities trade flexibility for guarantees. Money you put in is often hard to reach without penalties, most payouts do not rise with inflation unless you add a rider, and income is generally taxed as ordinary income.

• Guarantees depend on the claims-paying ability of the issuing insurance company, so compare carriers, fees and ratings, not just rates.

Why You’ll Hear So Much About Annuities at 65

Turning 65 is a milestone that triggers a flood of marketing: Medicare mailers, retirement seminars, and annuity offers. A phone call or a seminar invitation is not a recommendation built around your situation. The right question is not “should I buy an annuity?” but “what problem am I trying to solve, and is an annuity the best tool for it?”

When an Annuity May Fit

You want a guaranteed income floor. If you do not have a traditional pension and worry about covering essential expenses such as housing, food and healthcare, an income annuity can turn a lump sum into a paycheck you cannot outlive. It works alongside Social Security to cover what Social Security does not.

You want to protect principal. Fixed-rate (multi-year guaranteed) annuities offer a stated interest rate for a set number of years and are sometimes compared to certificates of deposit. They are different products with different rules, so compare them carefully.

You do not want to lose money in a downturn. At 65 and older, many people care less about maximizing growth and more about keeping what they have so they can focus on lifestyle in the years ahead.

Match the Term to Your Age

One of the most common mismatches is a long surrender period for an older buyer. A ten-year surrender schedule on an indexed annuity bought in your late 70s means your money may be tied up, or subject to charges, well into your late 80s. In most cases, the older you are, the shorter the maturity or surrender period should be. Before you buy, ask:

• How long is the surrender period, and what are the charges each year?

• How much can I withdraw each year without a penalty?

• What happens to the contract if I need long-term care, or if I pass away?

The Trade-Offs

• Liquidity. Once you purchase an income annuity or lock in a fixed term, getting to your principal can be difficult or expensive.

• Inflation. Most standard payouts do not adjust automatically. A cost-of-living rider can help but lowers the starting payment.

• Opportunity cost. Money in an annuity is not invested in assets that could grow faster over a retirement that may last 20 to 30 years.

• Taxes. Growth is tax-deferred, but payouts or withdrawals are generally taxed as ordinary income, not capital gains. Taxable income can also affect Medicare premiums through the income-related surcharge (IRMAA).

• Insurer strength. Guarantees are only as good as the company behind them.

Which Type Fits Which Goal?

• Immediate income annuity: converts a lump sum into regular income that starts right away. Often used to cover essential expenses.

• Deferred or indexed annuity: grows over time before turning on income later, for example at 70. Terms, caps and fees vary widely.

• Fixed-rate (MYGA): a guaranteed rate for a fixed number of years, typically a few years up to ten.

Tips for Buyers at 65

1. Shop around. Fees, caps and payout rates vary between carriers. Compare quotes.

2. Keep an emergency fund. Do not put 100% of your savings in an annuity; keep liquid cash or bonds for medical and personal surprises.

3. Check the insurer. Look at financial strength ratings from independent rating agencies such as AM Best.

4. Know your other income. Social Security and any pension may already cover your basic bills. That changes how much guaranteed income you need.

5. Get a second opinion. If you are pitched something with a long surrender period at an older age, ask someone independent to review it before you sign.

What To Do Next

Annuities can be a useful part of a retirement plan, but only when they fit your goals, timeline and need for access to your money. If you want an unbiased look at your situation, including whether an annuity makes sense at all, give us a call. We will tell you plainly if it does not.

Permission to Contact

Questions? Call (800) 927-9326 or email

This content is for educational purposes and is not individualized financial, tax or legal advice. Annuity guarantees are backed by the claims-paying ability of the issuing insurance company. Surrender charges and other limits may apply.