Reasons People Buy Annuities

Annuities can help address specific retirement income goals, depending on the type. But they may not be a fit for everyone, so it’s important to understand what makes them unique before deciding how one can help support your broader retirement income plan.

Key takeaways

• People often consider annuities when they want more predictable income, minimized market exposure or help planning for more years living in retirement.

• Annuities may be used for building savings, income or both.

• Tax-deferred growth can be one reason people consider annuities, but withdrawals and income payments do have tax implications.

• Annuities are long-term products and may not be a fit for people who need quick access to their money.

• The right fit depends on your income needs, liquidity needs, risk tolerance, tax preferences and overall retirement goals.

• A licensed agent or a producer can help compare how an annuity may work alongside Social Security, pensions, savings and investments.

When are annuities a good idea?

Annuities can be a good idea when they serve a clear purpose within a broader retirement income strategy. For some, that goal is creating a more predictable income stream. For others, it may be reducing risk, planning for predictable income later in retirement or adding another source of income alongside Social Security, pensions, savings or investments.

6 reasons people consider annuities

1. They want more predictable retirement income

One reason people consider annuities is to create a more predictable income stream in retirement by providing payments for a set period or for life. The structure of an annuity can appeal to people who want more certainty around part of their income plan, especially if they’re trying to coordinate several sources of retirement income, such as:

• Social Security benefits

• Pension payments

• Retirement account withdrawals

• Personal savings

• Investment income

With 44% of adults saying they somewhat or strongly prefer predictability over flexibility*, that desire for steadier income can be a major factor in why some people consider annuities.

2. They want to plan for a longer retirement

Some people consider annuities because they want to plan for the possibility of living longer than expected. Keith Lo, annuity product director at Mutual of Omaha, highlights, “It used to be that people planned to be retired for 20 or 25 years, but as life expectancies have increased, many retirees are finding out they are living longer than they planned for. An annuity can be an effective way to help support financial security and maintain your standard of living throughout your retirement.”

Certain annuities can provide income for life, which helps address the challenge of turning savings into predictable income over many years.

This may appeal to someone who is:

• Nearing retirement

• Already retired

• Concerned about outliving savings

• Looking for more predictability around retirement income

3. They want less risk for part of their savings

Market swings can feel more stressful when someone is approaching or already in retirement, especially if they expect their savings to help support regular income.

For that reason, some people consider fixed annuities as a way to give part of their savings a more defined role in their retirement plan. Unlike investments that are directly tied to daily market performance, a fixed annuity credits interest based on the terms of the contract. As DeBoer explains, “You’re not going to see market-to-market gains and losses on that type of annuity.”

This may appeal to someone who:

• Has a lower tolerance for market volatility

• Is nearing retirement and wants to reduce risk in part of their plan

• Wants to balance investments tied to the stock market with more predictable options

Before deciding, compare the trade-off. Lower market exposure may also mean lower growth potential, depending on the type of annuity.

4. They want tax-deferred growth

DeBoer explains, “With fixed annuities, your money grows tax-deferred.” That means taxes are generally paid when money is withdrawn or income payments begin.

This may appeal to someone who:

• Has already contributed to other retirement accounts

• Wants to delay paying taxes so more funds can stay invested long term

• Does not need to use the money right away

Before deciding, understand how withdrawals are taxed. Annuity payments may be fully or partly taxable, depending on how the contract was funded and whether you have an investment in the contract. Early withdrawals before age 59½ may also be subject to an additional tax unless an exception applies.³

5. They want income, now or later

Some annuities are designed to begin payments soon after purchase, while others are built to start income later. That timing can make annuities useful in different retirement planning situations.

This may appeal to someone who:

• Wants income soon after retiring

• Wants to plan for income later in retirement

• Is trying to match income timing to expected future expenses

Before deciding, review whether the annuity is income or deferred, when payments begin and how that timing fits with your Social Security, pensions, savings and investments.

6. They want to simplify part of their retirement income plan

Some people consider annuities because they want part of their retirement income to follow a more structured payment plan. Instead of managing every dollar through withdrawals from savings or investments, an annuity can provide predictable, structured payments.

This may appeal to someone who:

• Wants a portion of income to be more predictable

• Does not want to rely only on portfolio withdrawals

• Prefers an organized income stream

DeBoer recommends starting with the full retirement income picture, including Social Security, pensions and income from investments. The goal, he explains, is to “look at whether there’s a gap in your financial plan.”

Before deciding, review the full terms of the annuity. Simplicity in one area may come with trade-offs, including fees, surrender charges, inflation risk, tax treatment or reduced access to funds.

What questions should you ask before buying an annuity?

Before buying an annuity, ask questions that connect its benefits back to your goals, income needs and access to cash.

Questions to ask include:

• Do I need income now or later?

• Do I want to minimize risk and create more predictability around my retirement income?

• How much money do I need to keep accessible?

• How will withdrawals or payments be taxed?

• How does this fit with Social Security, pensions, investments and savings?

• What is the insurance company’s financial strength?

DeBoer explains that your decision to buy an annuity should start with the broader plan: “Think about your risk appetite. What tolerance for risk do you have? And think about what your income needs are in retirement, because those are the building blocks of this decision.”

These questions matter because retirement priorities are rarely one-dimensional. 35% of adults say their top retirement priority was their lifestyle and day-to-day standard of living, while 21% chose financial flexibility and access to assets.*

An insurance professional can help you compare options and understand how an annuity fits into your broader plan.

Frequently asked questions about why people buy annuities

Why would someone purchase an annuity?

People may purchase an annuity to help create more predictable income, plan for a longer retirement, reduce market exposure for part of their savings or help grow money tax deferred. The right fit depends on income needs, liquidity needs, risk tolerance and overall retirement goals.

Should I buy an annuity?

An annuity can be an option if it fits a specific income, tax or risk-management goal in your retirement plan. It may not be the right fit if you need easy access to your money, want higher growth potential or do not understand the contract terms.

How much will a $100,000 annuity pay per month?

The monthly payment from a $100,000 annuity depends on the type of annuity, age, interest rates, payout option, start date and terms. Because payments vary, it’s best to review a personalized quote before making a decision.

How much does a $500,000 annuity pay each month?

A $500,000 annuity payment depends on the annuity type, age, payout option, interest rates and when payments begin. The same premium can produce different payment amounts depending on the terms and income option selected.

Do millionaires use annuities?

A common misconception is that annuities are only for the wealthy as part of a broader income, tax or risk management strategy. Annuities are not only for wealthy people, though. The fit depends on the person’s goals, income needs, liquidity needs and overall financial plan.

Sources:

*Mutual of Omaha Annuities Study. Mutual of Omaha worked with research vendor quantilope to conduct a 5-minute online survey of 400 consumers age 45+ with a stated household income of $50,000 or more per year. Research was conducted April 22-28, 2026. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

1. Internal Revenue Service. (2025, August 26). Annuities — A brief description. https://www.irs.gov/retirement-plans/annuities-a-brief-description

2. Internal Revenue Service. (2025). Publication 575: Pension and annuity income. https://www.irs.gov/publications/p575

3. Internal Revenue Service. (2026, February 24). Topic no. 410: Pensions and annuities. https://www.irs.gov/taxtopics/tc410