Many of us can understand being on a fixed income and many seniors on social security will know better than most. Annuities can be used in basically the same manner. “How much you receive depends on whether you opt for a guaranteed payout (fixed annuity) or a payout stream determined by the performance of your annuity’s underlying investments (variable annuity).”
To take advantage of a (fixed) annuity, you must be able to pay enough into it to structure what kind and the amount of your monthly income you desire. It’s not a bad idea if you can afford to start early enough and deposit enough every month long before retirement, but for those without the means to do that a (fixed) annuity is not the way to go. It can be a welcomed thing for someone who can make a budget and stick to it, but if you are anything like me, my monthly obligations only remain constant until I see something that I must buy which then derails any chance of living comfortably off that set amount.
To take advantage of a (variable) annuity, you must not only have the time to keep watch on how your money is doing but trust that your broker or agent really does have your best interest at heart. You must know when and how to move your money so that it will garner you the type and amount of return you need to live. This to me already sounds like way too much work to be doing while you are retired and if you are doing that much work, you have to begin to wonder if you are retired or not. What may also be a little scary is how frightening the markets have been in the past and no real guarantee on how safe your investment really is. For those who like this kind of gambling, it may just be the vehicle to keep you feeling alive but for me it would be too much work during the time I just wanted to relax and finally enjoy life.
Final reason why I do not think annuities are the best source for retirement is “they can also be a lousy investment choice for certain people because of their notoriously high expenses.”