By Marc Gilman
Questions? Call (800) 927-9326 or email
Key Takeaways
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Dave Ramsey’s position, in his own words, is blunt: “For most people, an annuity just doesn’t make sense,” and on fixed annuities specifically, he writes there’s “never—ever a case where fixed annuities are the best option.”
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Some of his criticism is genuinely accurate: commissions, surrender periods, and product complexity are all real, well-documented features of many annuity contracts — not exaggerations.
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His fee breakdown, though, mostly describes variable annuities specifically — mortality and expense charges and investment management fees are costs tied to a variable annuity’s mutual-fund-style subaccounts. Fixed annuities and MYGAs generally don’t carry that same fee structure, which is a meaningful distinction his “annuities” framing tends to blur.
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Ramsey does allow one exception, in his own words: a variable annuity “might make sense” once you’ve paid off your home completely and maxed out every other tax-advantaged retirement account.
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The more useful question isn’t “is Ramsey right or wrong” — it’s “which type of annuity is actually being discussed,” since fixed, variable, and indexed products differ enough that a blanket verdict rarely applies cleanly to all three.
What Ramsey Actually Says
It’s worth reading his position in his own words rather than a secondhand summary, since the specifics matter here. On Ramsey Solutions’ own site, the verdict is direct: “For most people, an annuity just doesn’t make sense.” On fixed annuities specifically, the language is even more absolute: “there are no benefits. Just don’t. There’s never—ever—a case where fixed annuities are the best option.”
His broader case rests on a few pillars: annuities carry heavy layered fees (commissions up to 10%, ongoing insurance charges, investment management fees, and optional rider costs), long surrender periods that penalize early withdrawals, difficulty transferring funds out once committed, and — in his view — a rate of return that can’t compete with growth stock mutual funds over time.
Where His Critique Holds Up
Several parts of this are genuinely accurate and worth taking seriously, regardless of what you ultimately decide:
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Commissions are real and can run into the thousands of dollars on a large contract, paid to whoever sells the policy.
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Surrender periods are real — most annuities do restrict penalty-free access to your full premium for a period of years, and early withdrawals before 59½ trigger the same 10% IRS penalty that applies to early retirement account withdrawals generally.
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Complexity is a legitimate concern. Annuity contracts genuinely do involve more moving parts — riders, crediting methods, surrender schedules — than a simple mutual fund purchase, and that complexity is a real barrier for a lot of buyers, not a manufactured one.
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Putting already tax-advantaged money (a 401(k) or IRA) into an annuity purely for its tax deferral is redundant — the account is already tax-deferred, so you’re not gaining an additional tax benefit by adding an annuity on top, just added cost.
Where the Picture Is More Nuanced
Here’s where it’s worth slowing down. Look closely at Ramsey’s own fee list: mortality and expense risk charges and investment management fees — the two largest ongoing costs he cites — are specifically tied to how a variable annuity’s underlying mutual-fund-style subaccounts operate. A fixed annuity, and particularly a Multi-Year Guaranteed Annuity (MYGA), doesn’t have subaccounts to manage in the same way, and generally doesn’t carry that same layered fee structure.
That distinction matters, because Ramsey’s most absolute language — “never, ever a case where fixed annuities are the best option” — is delivered as a blanket verdict on fixed annuities, while several of the specific costs he cites as justification are actually variable-annuity-specific. It’s a real inconsistency worth noticing: the fee evidence and the fixed-annuity conclusion don’t fully line up with each other.
His Own Stated Exception
To his credit, Ramsey doesn’t claim annuities are categorically worthless in every scenario. In his own words: a variable annuity “might make sense” for someone who has “already paid off your house completely and maxed out all your other tax-favored retirement plans.” That’s a meaningfully narrow carve-out — it applies to a small slice of retirement savers, specifically those who’ve already exhausted every other tax-advantaged option and are debt-free including their mortgage — but it’s a real exception in his own framework, not an absolute “never” across the board.
The More Useful Question
Rather than treating this as “Ramsey is right” or “Ramsey is wrong,” the more productive question is: which type of annuity is actually being discussed?
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If the conversation is about a variable annuity with a full stack of M&E charges, fund management fees, and optional riders, several of Ramsey’s specific cost criticisms land accurately.
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If the conversation is about a MYGA or a straightforward fixed annuity, many of those specific fee criticisms simply don’t apply the same way — though the surrender period and illiquidity points generally still do.
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If the conversation is about using an annuity to guarantee lifetime income you can’t outlive, that’s solving a fundamentally different problem than “which product has the best expected rate of return” — the comparison Ramsey’s mutual-fund alternative is built around.
What This Means for You
Ramsey’s audience is disproportionately people working through debt and building their first nest egg — and for that specific audience, his blanket skepticism of complex financial products, annuities included, is a reasonable simplification. But “reasonable simplification for a beginner audience” and “accurate for every retiree’s actual situation” aren’t the same thing. If you’re closer to retirement, already debt-free, and specifically looking to protect against outliving your savings — a different problem than growing wealth as fast as possible — the calculus looks different than it does for Ramsey’s typical caller.
What To Do Next
Rather than taking either “annuities are always bad” or “annuities are always good” at face value, the more useful approach is figuring out which specific product type and structure actually fits what you’re trying to solve — growth, income, or both. If you want to look at your own numbers against both the criticism and the genuine use cases, reach out and we’ll work through it honestly, fees and all.
Questions? Call (800) 927-9326 or email
Source: “What Is an Annuity and How Does It Work?” Ramsey Solutions (ramseysolutions.com), last updated October 2024.
