Should a 65-year-old buy an annuity?

Start with the gap, not the product

The single most useful thing a 65-year-old can do before considering any contract is a subtraction. Write down essential monthly spending, the amount that does not flex: housing, food, insurance, utilities, medical. Then subtract Social Security and any pension. What remains is the gap.

If the gap is zero or close to it, the case for buying guaranteed income is weak, and no product feature changes that. If the gap is real and persistent, then the question becomes which asset is best suited to covering it, and that is a question an annuity can legitimately answer.

Notice what this method avoids. It never starts from how much you have saved, which is the number salespeople tend to start from. A larger portfolio does not create a larger need for guaranteed income. Spending does.

The four conditions that make it fit

• There is a real gap. Essential spending exceeds guaranteed income by an amount that persists year after year.
• The money has no other job. It is not the health reserve, the roof fund, or the money earmarked for someone else.
• You can leave it alone. The surrender period runs its course without you needing to reach in.
• The certainty is worth the trade. You would rather have a smaller, dependable number than a larger, variable one.

Where all four hold, an annuity is doing something other assets do poorly, which is producing income that cannot be outlived. Where one or two fail, the fit weakens sharply, and where three fail the product is being sold rather than chosen.

When the answer at 65 is clearly no

When the gap is already covered. A pension plus Social Security often closes it. Adding guaranteed income on top converts flexible money into rigid money for no gain.

When the money is the emergency reserve. Health costs in the late sixties and seventies are the most common reason people need access, and a surrender schedule is precisely the wrong container for money that might be called on.

When it is most of what you have. Committing the majority of savings to one contract concentrates both the promise and the counterparty. Our note on who should not buy an annuity covers this in full.

When the sale is running on urgency. A rate that expires, a bonus that vanishes, a window closing. Real deadlines in this category are rare, and the ones that get quoted usually are not.

Educational information only, not individualized advice. Annuity Explained is an educational resource and matching service, not an insurance agency, and does not sell insurance. Guarantees are subject to the claims-paying ability of the issuing insurer and are not FDIC-insured or bank-guaranteed. Annuities are long-term products that may carry surrender charges, and withdrawals before 59½ may incur a 10% federal penalty.

The couples question, which gets skipped

A single-life payout shows a bigger monthly number than a joint payout on the same premium, because the insurer expects to pay for one lifetime rather than the longer of two. That difference is exactly why single life looks more attractive on an illustration.

The consequence lands later. When the covered spouse dies, a single-life payment stops. Households that chose it for the larger headline number can find survivor income sharply reduced at the moment it matters most, alongside the reduction in Social Security that arrives at the same time.

Deciding jointly costs monthly income. Deciding singly costs survivor security. Either can be correct, but it should be a decision rather than a default, and it should be made with both people in the room.

What to do next, in order

• Run the subtraction and write the gap down as an actual monthly number.
• Check what the gap looks like in ten years, since a level payment buys less over time.
• Decide whether a survivor must be covered before looking at any product.
• Read is an annuity right for me and answer it honestly.
• Only then look at contracts, and compare several rather than one.

An annuity bought after that sequence tends to be a reasonable decision. One bought before it usually is not, whatever the age on the application.