When an annuity is the wrong retirement product

An annuity turns a lump sum into a stream of payments. It can make sense for someone who wants a paycheck they cannot outlive and who has already funded an emergency reserve. It is the wrong product when you need liquidity, when fees are opaque, or when a salesperson is paid more for the complex version. Skip indexed and variable annuities until you can explain the cap, the participation rate, and the surrender schedule in one sentence each. A 7-year surrender charge means you pay a penalty to get your own money back. That is a poor match for a household that may need a new roof or a care bill. Social Security and a pension are already annuities. Adding a third guaranteed check only helps if the rest of the portfolio is too aggressive or too small to cover a long life. If you have a large 401(k) and low spending, a simple withdrawal rule may cost less. Never buy an annuity with money you will need in five years, and never replace a workplace match to fund one. Ask for the illustration in writing and compare it with a Treasury ladder and a target-date fund at the same dollar amount.