Annuities are often pitched as a way to guarantee income and lower your financial stress in retirement. But Dave Ramsey has been outspoken for years about why he believes most people should steer clear of them. He argues that annuities are overcomplicated, expensive, and inferior to traditional investing for long-term growth. Understanding his reasoning can help investors avoid costly mistakes.
Here’s how Ramsey views annuities — and why he remains firmly unconvinced.
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What are annuities?
An annuity is a financial contract between an individual and an insurance company designed to provide income later in life. You pay the insurer either a lump sum or a series of payments, and in exchange, the company agrees to grow the money and distribute payments in retirement.
These products are frequently marketed alongside traditional investments like stocks or bonds, even though they function very differently. The promise of predictable income is what makes annuities appealing to many retirees.
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Fixed versus variable annuities
Not all annuities work the same way, and Ramsey often points to these differences when explaining his criticism.
Fixed annuities
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Offer a guaranteed interest rate set by the insurance company
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Provide predictable income for life or a defined period
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Typically limit upside growth in exchange for stability
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Variable annuities
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Invest contributions in market-based subaccounts similar to mutual funds
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Allow balances to grow tax-deferred, with taxes due at withdrawal
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Expose investors to market risk while still carrying insurance fees
Ramsey argues that once fees and restrictions are factored in, neither option delivers enough value.
Pros and cons of annuities
Annuities do come with some benefits, which explains why they remain popular with certain retirees. They can offer a consistent monthly income stream and do not have any annual contribution limits. Some variable annuities also include death benefit features for heirs.
However, Ramsey focuses heavily on the drawbacks. These products often lock investors into long surrender periods, charge layered and opaque fees, and struggle to keep pace with inflation. He also emphasizes the loss of control, noting that accessing your own money early can be expensive and frustrating.
Why Ramsey is against annuities
Ramsey’s core objection is that annuities typically deliver lower long-term returns than growth-focused investments. He believes their conservative structure makes it difficult to outpace inflation, let alone build real wealth. In contrast, he points to diversified stock mutual funds, especially within workplace retirement plans, as the primary driver of net worth for most millionaires.
That said, Ramsey does acknowledge a narrow exception. He suggests that a variable annuity might only be worth considering after someone is completely debt-free, has paid off their home, and has already maxed out every tax-advantaged retirement account available.
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Alternatives to annuities
For those seeking income, growth, or tax advantages, Ramsey consistently recommends other strategies. These options typically offer more flexibility, transparency, and control.
Health savings account (HSA)
An HSA can function as a powerful retirement tool when paired with a high-deductible health plan. Contributions are tax-deductible, growth is tax-free, and qualified withdrawals for medical expenses are untaxed.
Used strategically, an HSA can supplement retirement income while covering rising health care costs.
Taxable investment account
A standard brokerage account provides flexibility that annuities often lack. Investors can access funds without surrender charges and manage tax exposure through capital gains planning.
While taxable, these accounts allow full control over asset allocation and withdrawal timing.
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Real estate
Rental properties can generate ongoing income and provide a hedge against inflation. Real estate also offers tax benefits such as depreciation and the potential for long-term appreciation.
For investors willing to manage property or hire help, this approach can diversify retirement income streams.
Before choosing any path, Ramsey emphasizes the importance of consulting a qualified financial professional.
Bottom line
Dave Ramsey’s message on annuities is clear — guaranteed income often comes at the cost of growth, flexibility, and transparency. For most investors, he believes traditional retirement accounts and diversified investing offer a better balance of risk and reward.
Understanding the trade-offs behind annuities can help retirees make the right moves with their money, protect long-term purchasing power, and build a plan that aligns with their broader financial goals.
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