At what age should you not buy an annuity? Here's what experts think

As Americans live longer and face growing concerns about outliving their savings, annuities are becoming a popular way to create steady retirement income. Annuity sales surpassed $432 billion in 2024, according to data from LIMRA, drawing many retirees to the promise of guaranteed payments for life.

But while these products can provide stable, reliable income in retirement, the timing of when you buy one can determine whether it's a smart or counterproductive financial move. And, the considerations change as you move through different stages of your golden years, as certain life circumstances and other factors can make annuities less attractive.

So, at what point does it not make sense to buy an annuity? Below, financial advisors and retirement specialists explain when age and circumstances should influence your decision, and what other income strategies it could make sense to consider.

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At what age should you not buy an annuity? What experts think

"Generally, we don't recommend annuities to people under age 50 [because] there are tax penalties for withdrawals before age 59 ½," says Jonathan Viscounte, CFP, CLU, ChFC, a financial planner at Prudential Advisors. "[And] many times, young people have various needs that come up before they reach retirement age." Younger investors also have decades to ride out market volatility and benefit from potentially higher returns in stocks and other growth investments.

On the other end of the spectrum, insurance companies often stop selling annuities to seniors after age 90 to 95, according to Leah Brandt, managing partner of AnnuityPath, an online annuity resource and brokerage. 

"The insurance companies know the likelihood of death happening before they make a return on the policy is high," Brandt says. 

Age limits aside, though, other considerations come into play. Here are a few other times when an annuity may not make sense.

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When annuities don't make sense for older adults

Annuities come with various costs, including administrative fees and surrender charges. For adults over 80, these expenses become more problematic because there's less time for the guaranteed income to offset the costs.

Experts say annuities may not make sense in these scenarios:

• You have your basic needs covered. Viscounte says if you can cover your essential expenses with Social Security and pensions, and can comfortably withdraw 3% to 5% from your remaining savings for discretionary spending, paying fees to guarantee income may not be worth it.
• You need cash for emergencies or want investment flexibility. "When you put money into an annuity, you generally lose the liquidity of that money," says Mary Stork, senior vice president and general manager at USAA Retirement and Investment Solutions. Surrender charges can be high if you need to access funds early.
• You have major health issues. Brandt highlights that income annuities aren't ideal for people with health problems, even though some companies offer higher payouts based on medical conditions. "In my experience, the increased income isn't worth it," she notes.

Before committing, ask yourself three questions to determine whether annuity payments are worth the trade-offs:

• What risk are you trying to solve? Viscounte recommends identifying the concern driving your interest (e.g., market risk, outliving your savings).
• How much liquidity will you lose? Brandt advises keeping no more than 50% to 60% of your assets (excluding your home) in annuities.
• What are the tax implications for your heirs? "You'll receive a tax deferral in [a non-qualified] annuity while you're living, Viscounte points out. "[But] eventually your heirs will pay taxes on the growth when you're not." In a regular investment, on the other hand, they'll receive a step up in the cost basis and avoid paying taxes on growth.

Alternative strategies for generating income in retirement

If annuities don't fit your needs, Stork points to alternative strategies that can offer more flexibility and generate retirement income:

• Certificate of deposit (CD) ladders or bond portfolios: This involves staggering maturity dates across different periods, giving you regular income while maintaining some liquidity. You can access portions of your money as each CD or bond matures.
• Home equity or reverse mortgages: For homeowners 62 and older, tapping into home equity can provide income during market downturns.
• Part-time work: Continuing to work, even part-time or freelance, provides income while allowing you to delay drawing from retirement savings.

The bottom line

While annuities can provide valuable guaranteed lifetime income, timing is crucial. Buying too early means missing out on growth potential, while buying too late often means paying high fees for benefits you may not fully enjoy.

Before purchasing an annuity, assess your health, income and liquidity requirements. Then, consider consulting a financial advisor who can evaluate your circumstances. They'll help you determine whether an annuity truly addresses your retirement concerns or if other strategies might work better.