What Are Annuities? (& Should You Even Care?)
If the word “annuity” sounds like something your grandpa whispers to his financial advisor while sipping prune juice—hold up. It’s giving retirement energy, but we promise: annuities can be a legit wealth-building power move, even for millennials and Gen Z hustlers who aren’t trying to be broke at 65.
Let’s break it down—no finance degree required. By the end of this, you’ll know what annuities are, whether they’re worth your attention, and how they stack up against other investment options. We’re talking guaranteed income, compound growth, tax-deferred gains, and yes, real pros and cons. No cap.
What Even *Is* an Annuity?
At its core, an annuity is a contract between you and an insurance company. You give them money (either all at once or over time), and they promise to pay you a fixed amount of money in the future—usually during retirement. That payout could be for a set number of years or for the rest of your life.
It’s like building your own DIY pension plan—especially clutch if you don’t have a 401(k) or think Social Security is just vibes.
Types of Annuities (A.K.A. Choose Your Fighter)
Annuities come in different styles, each with its own risk/reward vibes. Here’s a quick breakdown:
- Fixed Annuity: Pays you a set amount. It’s stable, predictable, and kind of boring—in a good way.
- Variable Annuity: Linked to market performance. You could earn more, but you could also lose some value. High risk, high reward.
- Indexed Annuity: A hybrid. Tied to a stock index (like the S&P 500), but with some safety nets.
- Immediate Annuity: You start getting paid right away (usually within a year).
- Deferred Annuity: You wait a while before cashing in—usually used for long-term retirement planning.
Still confused? It’s like ordering at Chipotle:
- Fixed = straight-up burrito
- Variable = custom bowl with mystery toppings
- Indexed = safety-net salad with guac if the market hits right
How Do You Make Money With Annuities?
Annuities make you money in two main ways:
- Tax-deferred growth: Your money grows without being taxed until you start pulling it out.
- Guaranteed payments: Depending on the plan, you could get paid monthly for the rest of your life—even if you live to 105 and outlive all your exes.
Some annuities offer riders (aka add-ons) that boost benefits like long-term care, higher payouts, or inflation protection. Just like adding features to your budgeting app, they usually cost extra, but can be worth it.
Should Gen Z Even Consider Annuities?
Honestly, maybe. Especially if you're:
- Self-employed or a freelancer (no 401(k) match)
- Worried about outliving your savings
- Not here for stock market stress or don’t want to manage investments daily
Most people sleep on annuities until they're 50+. But if you're in your 20s or 30s and thinking long-term, starting young means way more compounding time.
But full send? They’re not for everyone. They can be complex, come with high fees, and if you need to withdraw early, expect penalties (and the IRS side-eye).
Real Talk: Pros and Cons
| Pros | Cons |
|---|---|
| Guaranteed lifetime income | High fees compared to IRAs |
| Tax-deferred growth | Early withdrawal penalties |
| Protection from market downturns | Not liquid—hard to cash out early |
Compare that with low-cost index funds, and you’ll see annuities shine for security but lag in growth potential.
Annuity vs. 401(k) vs. Roth IRA
Don’t get it twisted: an annuity is not a retirement account—it’s a product. But it can function like one if used right. Here’s how they stack up:
- 401(k): Usually has employer match, tax-deferred. Best if your job offers one.
- Roth IRA: Tax-free withdrawals. Ideal if you want long-term growth freedom. Try Fidelity or YNAB to budget and invest smarter.
- Annuity: Lifetime income, but lower flexibility and higher cost.
Want to try them all? You totally can—stack that wealth like Pokémon cards.
How to Buy an Annuity Without Getting Scammed
Not gonna lie: annuities have a shady past thanks to some sleazy salespeople. Avoid the cringe with this checklist:
- Buy from a licensed financial advisor or insurance company
- Compare at least 3 offers—some have better payout rates or lower fees
- Read the fine print on surrender charges, income riders, and guarantees
- Don’t buy from someone who pressures you with “limited-time offers” (🚩🚩🚩)
You can use Investopedia’s annuity comparison tool to explore options without sales pressure.
Where Do You Even Open One?
You can buy annuities through:
- Insurance companies (Prudential, MassMutual, Allianz)
- Financial brokers (Fidelity, Charles Schwab, Vanguard)
- Online platforms like Blueprint Income
Start small, ask questions, and don’t drop a dime until you understand what you’re buying.
Final Word: Are Annuities a W or L?
Annuities aren’t trendy. They’re not exciting like crypto or Tesla stock. But they are lowkey powerful for anyone who wants guaranteed income, especially if you think traditional retirement plans won’t cut it.
They work best when paired with other tools like a killer budgeting app and a steady side hustle.
If you’re Gen Z or early-career and want to plan smarter now (not when it’s too late), annuities can play a role. Just don’t let anyone tell you they’re the only way.
TL;DR
- Annuities = contracts that pay you income later
- They’re tax-deferred, sometimes guaranteed for life
- Not for everyone: they come with fees and less flexibility
- Gen Z can use them alongside IRAs and side hustle cash for a solid glow-up plan
