The short version

An annuity is a contract with an insurance company. In the plainest terms, you hand the insurer money and, in return, the company promises something back — a guaranteed interest rate for a set term, protection of your principal, or income payments you can't outlive. That promise is genuinely valuable to some people and genuinely wrong for others. The honest answer to "who should not buy an annuity" is that it depends on your timeline, your need for access to the cash, your age, and whether a simpler, cheaper tool would do the same job.

This guide is educational, not investment advice. The Jordan Insurance Agency is a licensed independent insurance agency in Charlotte, North Carolina — not a financial planner, investment manager, or tax preparer. Our goal here is to help you decide, in plain English, whether an annuity is even in the running for you before you talk to anyone about a specific product. We work only in the fixed and fixed-indexed lane; variable annuities are securities that require a securities license and are outside what we do, so we mention them only to clarify the difference.

What an annuity is actually promising

Before deciding whether an annuity fits, it helps to be clear on what you're buying. A fixed annuity — including a MYGA, or multi-year guaranteed annuity — locks in a guaranteed interest rate for a set number of years. A fixed indexed annuity (FIA) is a fixed annuity whose interest is linked to a market index like the S&P 500, but with a floor: the credited rate can never be less than zero, so a down year in the index doesn't reduce your principal (withdrawals, fees, and rider charges can still reduce value).

The core appeal across both is some combination of three things: protection of principal, tax-deferred growth inside the contract, and — if you choose it — guaranteed income for life. What you give up in exchange is liquidity and simplicity. That trade is the whole decision, and it's why the same product can be a good fit for one person and a bad one for their neighbor. If you want to understand how these types differ from each other and from variable annuities, our guide on fixed vs. indexed vs. variable annuities breaks it down.

Who an annuity may suit

Annuities tend to make the most sense for people whose goals line up with what the contract is built to do. You may be a reasonable candidate if several of these describe you:

  • You want guaranteed income you can't outlive. The signature feature of an annuity is the option to turn a lump sum into payments that last for the rest of your life, no matter how long that is. If your biggest retirement worry is running out of money, that's precisely the risk an annuity is designed to address.
  • You want principal protection for money you can't afford to lose. Conservative savers who want a portion of their nest egg shielded from market drops — while still earning tax-deferred interest — are the classic fit for a fixed or fixed-indexed annuity.
  • You've already maxed out other tax-advantaged accounts. If you've contributed all you can to a 401(k), IRA, or similar plan and still want more tax-deferred growth, a non-qualified annuity can add another tax-deferred bucket.
  • You won't need the money during the surrender period. Annuities reward patience. If the funds are genuinely earmarked for later — you have other savings for near-term needs — the surrender window is far less of an obstacle.
  • You value a simple, predictable promise over chasing higher returns. Some people sleep better knowing exactly what they'll get. An annuity trades upside for certainty, and for the right person that's a feature, not a bug.

Even in these cases, an annuity should be a piece of a plan, not the whole plan. Guaranteed income is powerful, but liquidity and growth matter too, so most people use an annuity for part of their savings rather than all of it.

Who should think twice — or say no

This is the part most sales pitches skip. There are clear situations where an annuity is the wrong tool, and being honest about them is how you avoid an expensive mistake.

You may need the money in the short term

Annuities are long-term contracts. Take out more than the allowed amount during the surrender period and you'll pay a surrender charge. In North Carolina, surrender charges typically apply during the first 5 to 15 years from the policy issue date. Many contracts let you withdraw up to about 10% of the value each year without a charge, but the exact free-withdrawal amount is set in your contract, and anything above it triggers the charge. If there's a real chance you'll need a big chunk of this money soon — a home purchase, a business, an emergency fund you haven't otherwise built — an annuity's illiquidity works against you. Our guide on the annuity surrender period and surrender charges covers how that window works.

You're under 59½ and likely to withdraw

Beyond any surrender charge from the insurer, the IRS adds its own rule: taxable amounts withdrawn before age 59½ are generally subject to an additional 10% federal tax on the portion includible in income, unless an exception applies. That IRS penalty is separate from, and on top of, any surrender charge in the contract. For a younger buyer who may realistically need to tap the funds, that combination can be costly. Our page on the annuity early-withdrawal penalty explains it in more detail.

You already have plenty of guaranteed income

If Social Security, a pension, and other reliable sources already comfortably cover your essential expenses, the main thing an annuity offers — guaranteed lifetime income — may be something you don't especially need more of. In that case your dollars might do more for you kept liquid or positioned for growth, depending on your goals. This is exactly the kind of judgment call to talk through, and it's why a good conversation starts with what income you already have locked in.

You could reach the same goal more cheaply

Annuities come with trade-offs that function like costs: caps, participation rates, and spreads limit how much index gain a fixed indexed annuity credits; optional riders (like a lifetime-income rider) usually carry an extra charge; and the surrender schedule limits access. None of these are hidden if you read the contract, but they're real. If a simpler, lower-cost option would meet your goal just as well, that option may be the better answer. A fair comparison names the trade-offs on both sides rather than pretending one product is free.

You feel pressured or don't understand the product

This one is a hard rule of thumb: if you can't explain in your own words what you're buying, what it costs you in liquidity, and what happens if you need the money early, you're not ready to sign. A reputable agent will slow down and answer those questions, not rush you. North Carolina holds annuity producers to a best-interest standard (effective January 1, 2023), which requires them to exercise reasonable care, disclose their role and compensation and any material conflicts, avoid putting their own financial interest ahead of yours, and document the basis for a recommendation. If a recommendation doesn't feel like it meets that bar, that's a reason to pause.

The trade-offs you should always weigh

No matter which side of the line you fall on, an honest look at an annuity means holding the benefits and the trade-offs side by side. Here are the ones that matter most:

  • Reduced liquidity. Your money is committed for the surrender period (roughly 5 to 15 years in North Carolina), with only a limited penalty-free withdrawal each year.
  • Surrender charges. Withdraw more than the free amount too early and you pay a charge set in your contract; it declines over the surrender period and reaches zero at maturity.
  • Caps, participation rates, and spreads (fixed indexed). These limit how much of the index's gain is credited to you. They're the price of the zero-percent floor, and they change over time by contract and carrier.
  • Fees and rider costs. Optional riders add value but usually cost extra; that cost should be disclosed and weighed.
  • Taxes on the way out. Growth is tax-deferred, not tax-free. Withdrawals of earnings are taxed as ordinary income, and the 10% early-withdrawal penalty may apply before 59½.

"Safe" has a specific meaning here

Annuities are often described as safe, and for fixed and fixed-indexed contracts that's fair — but the word means something specific. Annuities are not FDIC-insured. A fixed annuity's guarantees rest on the issuing insurance company's financial strength and claims-paying ability. As a backstop, the North Carolina Life & Health Insurance Guaranty Association covers up to $300,000 in present value of annuity benefits per individual, per member insurer, if that insurer becomes insolvent — but that association is not FDIC or government-backed, and by law it can't be used as a selling point. The practical takeaway: check the carrier's financial-strength rating, because the strength of the company standing behind the promise is what actually makes an annuity safe. Our guide on whether annuities are safe and our page on whether annuities are FDIC insured go deeper.

A note on retirement-account rollovers and RMDs

Many people first consider an annuity when they're deciding what to do with a 401(k) or IRA. Two rules are worth knowing before you assume an annuity is the answer. First, a properly done direct (trustee-to-trustee) rollover into a qualified annuity is not a taxable event and avoids the mandatory 20% withholding that applies when a distribution is paid to you. Second, if you're subject to required minimum distributions — the current RMD start age is 73 under SECURE 2.0 — remember that an RMD cannot be rolled over, so you must take the required amount before moving the rest. An annuity held inside an IRA or 401(k) is chosen for guarantees or income, not for extra tax deferral, because the retirement account is already tax-deferred. Our page on annuities and RMDs explains how required distributions interact with an annuity.

A clearly-labeled hypothetical

The following is a made-up illustration to show how the same product can fit one person and not another — it is not a quote, a recommendation, or a real plan. Imagine two Charlotte retirees, both 68. Dana has a solid pension plus Social Security that covers her essential bills, an emergency fund, and a brokerage account she likes managing herself; she doesn't lie awake worrying about income and may want a large sum available for a move in a few years. For Dana, locking a big share of her savings into a multi-year surrender period buys her a guarantee she doesn't really need and costs her the flexibility she values — an annuity is probably not the right tool for that money.

Marcus, also 68, has Social Security but no pension, a modest cushion for emergencies, and one recurring fear: outliving his savings. He wants a portion of his nest egg to become a paycheck that never stops, and he's comfortable leaving that portion untouched for the long haul. For Marcus, converting part of his savings into guaranteed lifetime income directly answers his biggest worry — an annuity may fit well for that slice of his money, provided he understands the surrender window, the trade-offs, and the carrier behind the contract. Same product, opposite conclusions, because the fit depends on the person.

Questions to ask yourself before you say yes

A short gut-check can save you from a mismatch. Before considering any specific annuity, ask:

  • Will I need this money during the surrender period (roughly 5 to 15 years)?
  • Am I under 59½ and realistically likely to withdraw earnings, triggering the 10% IRS penalty?
  • Do I already have enough guaranteed income to cover my essentials?
  • Could a simpler, lower-cost option meet the same goal?
  • Do I understand the surrender charges, the caps/participation/spread (if indexed), and any rider costs?
  • How financially strong is the insurance company standing behind the guarantee?
  • Does the recommendation clearly meet North Carolina's best-interest standard?

If most of your answers point toward long-term, guaranteed income you won't need to touch, an annuity may be worth exploring. If they point toward needing access, being young, or already having plenty of guaranteed income, it's reasonable to walk away — and a trustworthy agent will respect that.

How The Jordan Insurance Agency helps

The Jordan Insurance Agency is an independent, licensed insurance agency based in Charlotte, North Carolina, serving clients across the state. Because we're independent, we're not tied to a single company's product — which means our first job is an honest one: helping you figure out whether an annuity even fits your situation before we talk about any specific contract. If it doesn't fit, we'll tell you.

When an annuity does make sense for part of your money, we walk you through the fixed and fixed-indexed options in plain English — the surrender period and charges, the caps, participation rates, and spreads on indexed contracts, any rider costs, and how each carrier's financial strength backs the guarantee. We explain how a direct rollover from a 401(k) or IRA works, where the 10% pre-59½ penalty and RMD rules come into play, and why an annuity is never FDIC-insured. We are not financial planners or tax preparers, so for personalized financial or tax advice we'll point you to the right licensed professional. For any current-year figure or contract detail not shown here, The Jordan Insurance Agency can confirm it and walk through it with you — with no pressure, and no obligation. If you'd like help choosing the right professional for this decision, our guide on a financial advisor vs. an insurance agent is a good place to start. When you're ready, reach out and we'll talk it through, one plain-English step at a time.