Are Annuities Safe? What Are the Pros and Cons?
Last updated: October 12, 2026
Annuities are insurance contracts. When used intentionally, especially with income-rider contracts, they can create guaranteed paychecks for life and reduce market stress. The trade-offs: some contracts have fees, less liquidity, and you must choose a strong insurer. Guaranteed lifetime income, what we call Protected Lifetime Income (PLI), is the preferred approach for covering essentials and non-negotiable experiences, so market swings never control your lifestyle.
If your retirement lifestyle depends on market withdrawals, a bad market, or even just the fear of one, can force you to cut spending. Annuity guarantees can secure your essentials and your non-negotiable adventures, experiences, and memories with loved ones, so markets don’t control your life.
That matters more the longer you are here, and people are here longer than they plan for. J.P. Morgan gives at least one member of a non-smoking 65-year-old couple in excellent health a 74% chance of reaching 90 and a 16% chance of reaching 100.6 You should see those odds before you decide what has to be guaranteed and what does not, so here is how long you are actually likely to live.
Watch: The Objections, Said Out Loud and Answered
Six minutes of every knock you have heard about annuities, stated plainly before you can raise them, then answered one at a time. Including the one that is true.
The figures in this video were current when it was recorded. Income factors change over time. The principle does not. The numbers on this page are the current ones.
There are more videos like this one. See the complete list.
Truth vs. Myth
- Myth: “If I die tomorrow, the insurer keeps it all.”
Truth: That’s only true for certain life-only income contracts. Many contracts offer refund or period-certain options. Income-rider contracts have an account value, and whatever is left of it could go to your heirs, depending on how long you live. If you died early, there would usually be an account balance to transfer to your heirs, unless it’s joint income and your spouse is still alive, in which case the income would continue. - Myth: “Riders are useless fees.”
Truth: Some riders are expensive, but others provide valuable lifetime income guarantees when used intentionally. People often complain about fees for guaranteed income, but are fine paying fees for money management that can’t offer guarantees or even protect against losses.
What Does Warren Buffett Think of Annuities?
His comment on record was a warning to insurance companies, not to buyers. In May 2009, Reuters reported that Buffett criticized life insurers that sold variable annuities with guarantees: “I always thought they were crazy when they were doing it.” He described those contracts as giving the buyer some of the market’s upside plus a promise to always get the premium back, and said, “From a company’s perspective, that’s poison”.7 In 2013, Berkshire Hathaway took over a block of those guarantees from Cigna.8 We found nothing he has said about fixed index annuities.
A variable annuity is a securities product. We don’t sell securities, and we don’t use variable annuities. Buffett’s warning is one reason: a promise has to be one the insurance company can keep. What happens if an insurer does fail is covered next on this page.
What Happens If the Insurance Company Fails?
An annuity is not backed by the government and it is not backed by the market. It is backed by the claims-paying ability of the insurance company that issued it. Carrier strength is the first thing we look at on any contract, using independent ratings from AM Best, Moody’s, and S&P.
Every dollar that goes into a fixed annuity lands in the insurer’s general account, and that account is invested conservatively. At the end of 2025, 67.0% of what US life insurers held in cash and invested assets was in bonds, and bonds rated below investment grade made up 4.6% of the total bond portfolio.1
Insurers carry capital and surplus on top of that as a cushion. At the end of 2025 the life industry held $540.7 billion in capital and surplus against $6.44 trillion in net admitted assets outside separate accounts, which works out to roughly 8 cents of cushion for every dollar. That ratio is not published anywhere we could find, so we calculated it from the two figures the National Association of Insurance Commissioners reports.2 State regulators watch that cushion and are required to act long before it runs out.
If a company does fail anyway, your state’s guaranty association steps in. Every insurer licensed in that state funds it.
| Where You Live | Annuity Coverage, Per Person, Per Failed Carrier |
|---|---|
| Missouri, Kansas, Nebraska, Iowa | $250,000 |
| Florida | $250,000 before income starts, $300,000 once it is in payout |
Forty states sit at $250,000. Six are at $300,000, and four are at $500,000. No state is lower.34 Anything above the limit becomes a claim against what is left of the failed company.
What If the Amount I Am Allocating Is Above the Limit?
Coverage is counted per person, per failed carrier. It is not per household.5
A married couple putting $300,000 toward guaranteed lifetime income can hold $150,000 in each name and stay well under the threshold on both. Above that, we spread the money across multiple carriers so no single contract sits over the line.
Income contracts have a second thing working in your favor. Once the income turns on, the account value starts coming down, and the amount exposed above the threshold comes down with it.
Growth annuities work differently. Those we evaluate case by case, so the protection is structured the best way it can be for what you want the money to do.
None of this is a promise that a carrier cannot fail. It is why we pick the carrier first, structure around the limit second, and protect only the right amount for the life you choose. Your essentials, the adventures and experiences you want, and the memories with the people you love. The rest stays liquid and keeps growing.
Pros and Cons (Plain English)
- Pros:
- Lifetime income you can’t outlive
- Less sequence-of-returns risk
- Clear license to spend on essentials and your adventures, experiences, and memories with loved ones
- Survivor stability for your spouse or loved ones
- Rider fees come out of your account balance, not your income, so paying them does not shrink the paycheck
- Cons:
- Liquidity limits, meaning you may not be able to access all your money at once. We put real numbers on what that costs, on both sides, in Is Your Retirement Money Really Liquid? What Traditional Planning Never Quotes You
- Contract complexity, as rules and features can be confusing
The rider fee is what buys the income. It comes out of your account balance, and not a penny of it touches the paycheck. With the contracts we typically use, that fee is what makes the income guaranteed for life in the first place, and once the contract is issued the amount does not move with the market, with interest rates, or with how long you or your spouse live.
Compare that to how a fee works in a traditional withdrawal plan. There the fee comes out of the same account balance your income is calculated from, which means every dollar of fee lowers the amount you can safely withdraw for the rest of your life. On an income contract, you allocated that money for the paycheck, and the paycheck is what the guarantee is written on. We walk through the arithmetic on fee drag in How Fees and Taxes Quietly Cut Retirement Income.
How We Use Annuities (Protected Lifetime Income)
We use annuities, what we call Protected Lifetime Income (PLI) solutions, to cover your essentials, the adventures and experiences you want, and the memories with the people you love. Investments are then used for upgrades, flexibility, and legacy. This approach helps you spend confidently, knowing your must-haves are protected.
Note: Guarantees rely on the insurer’s claims-paying ability. This information is educational only and not advice.
Map Out Your Ideal Retirement
Let’s discuss the experiences and essentials you want to protect, and how to build your income stack around them.
A number on a statement is not a paycheck.
You’ve spent decades building that balance. But the question that keeps people up at night isn’t how much they have. It’s whether it will still be there when they’re 85, 90 or older. If you don’t know exactly how much income your savings can give you every month for the rest of your life, aren’t you guessing with the one thing you can’t afford to get wrong? In a free 15-to-30-minute Retirement Income Blueprint Call, we look at your numbers and show you what’s possible. First your life, then your money.
Experience: Since founding KJ Financial in 2010, Kurt H. Jackson has worked with retirees and pre-retirees across Missouri, Nebraska, Kansas, Iowa, and Florida who discovered that the retirement plan they had built around a fixed withdrawal rule was far more fragile than they realized. He has worked directly with clients coming out of the 2008 crash, and with clients who retired into the 2020 COVID drop and the inflation spike of 2021 to 2023, and he has seen firsthand what sequence of returns risk does to a withdrawal-only strategy versus a Lifestyle-First plan with a guaranteed income floor. Before founding KJ Financial, he spent 20 years as a Certified Mortgage Planner working with more than 1,000 clients on major financial commitments, giving him deep insight into how financial decisions compound over time.
Expertise: Kurt is a Retirement Lifestyle Architect and the creator of the Lifestyle-First Retirement Income Planning framework. He builds guaranteed lifetime income, which he calls Protected Lifetime Income (PLI), under both his clients’ essentials and their non-negotiables, the adventures, the experiences and the memories with those they care about. With that income floor in place, the rest of their money no longer has to pay the bills, which means it doesn’t have to be sold in a down market. He is Life and Health Insurance Licensed in MO, NE, KS, IA, and FL. His practice focuses exclusively on insurance-based, tax-optimized retirement income strategies. He does not manage investments or sell securities.
Authoritativeness: Kurt founded KJ Financial and operates MaxMyRetirementIncome.com as a dedicated educational resource for retirees. His work is grounded in peer-reviewed and independently published research, cited directly on each page. He applies that research to the practical income planning decisions retirees face every day in the states he serves.
Trustworthiness: KJ Financial is a compliance-first firm. All figures and research citations on this page are sourced from publicly available, independently published studies and are linked directly in the content. Kurt is paid by commission from the insurance company that issues the policy. Kurt H. Jackson is not a securities broker, registered investment advisor, or CPA. Guarantees rely on the claims-paying ability of the issuing insurance company.
Contact KJ Financial:
1014 E. 5th St., Maryville, MO 64468
Direct: 816.582.5532
Email: kurt@kjfinancialonline.com
Website: www.MaxMyRetirementIncome.com
Educational only, not tax, legal, or individualized investment advice. Guarantees rely on the issuing insurer’s claims-paying ability. Any figures shown are illustrative and may differ for your situation based on age, health, product features, fees, allocations, and market conditions.
“Is it enough?” is the wrong question to leave unanswered.
Enough for how long? Enough if the market drops the year you retire? Enough if prices keep rising for 25 or 30 years? Enough to keep the adventures, the experiences and the memories with the people you love? If you can’t answer those today, you don’t really know if it’s enough. That’s exactly what we work out in a free 15-to-30-minute Retirement Income Blueprint Call. First your life, then your money.
This is a relaxed, no-pressure conversation to help you clarify your retirement priorities and next steps.
Sources
- National Association of Insurance Commissioners, 2025 Annual Life and A&H Insurance Industry Analysis Report. Bonds at 67.0% of the life industry’s cash and invested assets, $3,999.7 billion of $5,971.6 billion, with noninvestment-grade bonds at 4.6% of total bonds. Figures as of December 31, 2025.
- National Association of Insurance Commissioners, 2025 Annual Life and A&H Insurance Industry Analysis Report. Total capital and surplus of $540.7 billion and net admitted assets excluding separate accounts of $6,435.6 billion, as of December 31, 2025. The NAIC publishes both figures but not the ratio between them, so the roughly 8 cents of cushion per dollar stated on this page is calculated from these two numbers.
- National Organization of Life and Health Insurance Guaranty Associations, How You Are Protected. The state-by-state coverage table showing $250,000 as the lowest annuity coverage limit in the country, in effect in forty jurisdictions, with six at $300,000, Minnesota at $410,000 for annuitized contracts, and four at $500,000. Limits as of June 1, 2025.
- Florida Life and Health Insurance Guaranty Association, coverage limits. The Florida limits of $250,000 per contract owner on a deferred annuity net cash surrender value and $300,000 per contract owner on an annuity in benefit.
- Missouri Life and Health Insurance Guaranty Association, coverage limits. The Missouri annuity limit of $250,000 in cash value or surrender value, and the statement that these maximums are applied on a per insured, per insolvency basis.
- J.P. Morgan Asset Management, Guide to Retirement 2026, the Life Expectancy Probabilities page. J.P. Morgan’s own longevity chart for a non-smoker in excellent health who is age 65 today, giving a man a 64% chance of reaching 85, 43% of 90, 21% of 95 and 6% of 100; a woman 73%, 54%, 30% and 11%; at least one member of a couple 90%, 74%, 44% and 16%; and both members of a couple 47%, 23%, 6% and 1%.
- Reuters’ report “Buffett says life insurers took crazy bets,” by Jonathan Stempel and Lilla Zuill, as published by International Business Times. (May 4, 2009)
- Cigna’s February 4, 2013 press release, filed with the SEC, announcing that Berkshire would reinsure its run-off guaranteed death and income benefits.
Illustrative guaranteed-income figures are current carrier estimates, are hypothetical, and depend on your age, your contract, and the carrier at the time of purchase.