By Brent Matthew
Annuities are easily one of the most polarizing tools in finance. At Scottsdale Wealth Advisory, we’re fans of annuities, but only when they solve a specific problem. For roughly half the families we meet, an annuity isn’t the right answer. Instead of simply looking for the best annuity, it’s important to carefully weigh the annuity pros and cons for retirees.
In this guide, I walk you through annuity mistakes to avoid and some of the key things retirees wish they knew before buying.
“I Wish I Knew It Wasn’t an Investment”
How do annuities work in 2026? Many people understand that annuities can provide guaranteed lifetime income, but they may not know much beyond that.
Simply put, an annuity is a form of insurance as opposed to an investment. The insurance company agrees to pay back your money plus interest, but in exchange for guaranteed returns, you give up the potential for maximum growth in the market.
When you’re thinking about annuity pros and cons for retirees, consider the context. Today’s higher interest rates make annuities more attractive than they were five years ago, but they still aren’t going to beat the S&P 500.
“I Wish I Knew About the 10% Rule” (Liquidity & Surrender Charges)
Annuities can provide future income, but they can also cause liquidity issues. Many people considering annuities aren’t aware of the “surrender period” most policies have.
A surrender period is a period of time, usually 5 to 10 years, during which withdrawing more than the maximum allowable amount can result in financial penalties. Most modern annuities let you withdraw up to 10% per year with no penalty, but that can be a restrictive ceiling. You never want to put your emergency fund in an annuity.
“I Wish I Knew My Heirs Could Still Benefit”
When considering annuities, many people mistakenly believe that the insurance company always keeps their money when they die. The only annuities where this happens are those with “life only” payouts, though, and they’re extremely rare today.
If you have a “period certain” or “installment refund” annuity, you can specify that you want the remaining value to go to a spouse or child. We can help you structure beneficiary riders so you don’t sacrifice your legacy for your income.
When We Say “No”: Why an Annuity Might Not Fit You
We often help new and established clients weigh annuity pros and cons, and we recommend against annuities half the time. If you’re a “pension-rich” retiree with payouts that cover your bills and then some, for example, we usually suggest focusing on growth instead.
If you anticipate major medical costs in the near future, locking funds up in an annuity often isn’t the best move. And if you prioritize total flexibility, annuities can feel like a cage.
The 2026 “Stress Test”: Questions to Ask
When considering annuities, it may help to ask yourself the following:
- Is there an income gap between my fixed checks and my current lifestyle costs?
- If the market dropped 20% tomorrow, would I have to change my lifestyle?
If someone is selling you an annuity, reflect on whether it’s being presented as a cure-all or as a specific tool for a specific job.
Need Help Considering Annuity Pros and Cons for Retirees?
As a tool, an annuity is like a hammer: ideal for nails, ineffective for screws. The team at Scottsdale Wealth Advisory can help you weigh the pros and cons and decide whether it’s the “hammer” you really need. We’re committed to helping you live a fulfilled life through simple, straight-to-the-point financial education.
A family office approach guides our coaching. If you want a second opinion review or need Scottsdale retirement planning services, contact us online today. To schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew.
Frequently Asked Questions
What are the biggest annuity pros and cons for retirees?
One of the biggest advantages of an annuity is guaranteed income, which can help reduce the risk of outliving your savings and provide more stability during retirement. On the downside, annuities often come with surrender periods, limited liquidity, and potentially lower growth compared to traditional investments. When considering an annuity, it’s important to determine whether you need income security more than flexibility or growth.
Can my children still inherit money from my annuity?
Yes, in many cases your heirs can still benefit from your annuity. While some older “life only” annuities end payments when you pass away, many modern annuities include options like period-certain payouts or beneficiary riders that allow remaining funds to go to a spouse or children. At Scottsdale Wealth Advisory, we help families review annuity contracts carefully so they can balance retirement income needs with legacy planning goals.
How do I know if an annuity is right for my retirement plan?
An annuity may make sense if you’re concerned about market volatility, have an income gap between fixed income sources and living expenses, or want more predictability in retirement. However, if you already have strong pension income, need access to cash for major expenses, or prioritize investment growth, an annuity may not be the best fit. If you need help evaluating whether an annuity is solving a real problem or simply being sold as a one-size-fits-all solution, we recommend working with a financial advisor like our professionals at Scottsdale Wealth Advisory.
About Brent
Brent Matthew is the founder and CEO of Scottsdale Wealth Advisory, a full-service fiduciary retirement planning firm serving pre-retirees and retirees across Arizona and multiple states. With a strong commitment to always putting clients first, Brent leads the firm in developing comprehensive, tax-efficient financial plans tailored to each family’s unique goals.
Advisory services are offered by Scottsdale Wealth Advisory, LLC, an Investment Advisor in the State of Arizona. Insurance products and services are offered through Scottsdale Wealth Advisory, LLC. Scottsdale Wealth Advisory, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency, and is not engaged in the practice of law. Be sure to consult with a licensed financial professional to confirm the accuracy of the insurance product you are considering.
