People approaching retirement may consider annuities when:
Paychecks stop and they want predictable monthly income
Social Security alone may not cover essential expenses
They worry about outliving their savings
They’re not comfortable drawing down from their retirement accounts
Market volatility is a concern
They have a large pool of assets but no pension
It's no secret that retirement planning can be stressful. Many people find themselves asking:
Will I have enough? How do I turn my savings into income? Will I be able to maintain the lifestyle I've worked for?
These questions often become more urgent as retirement approaches and the focus shifts from saving money to generating income from savings.
This is one reason many retirees begin evaluating annuities. Some types of annuities can provide guaranteed income that complements Social Security and other retirement resources, helping address concerns about longevity, market uncertainty, and spending confidence. As you start to think about life after regular paychecks, it may be an appropriate time to explore whether an annuity could play a role in your broader retirement income plan.
What annuities are and when they may help
Simply put, an annuity is a contract between you and an insurance company. The insurance company promises to provide income payments either right away or at a future date, depending on the type of annuity and the terms of the contract.
An annuity can turn savings into guaranteed periodic payments so you have a reliable income floor, allowing you to more accurately plan for whatever your next chapter looks like—whether it includes traveling or even pursuing a new passion project.
While some annuities are purchased after retirement to generate immediate income, others can be purchased years earlier while someone is still working. In many cases, the question is not whether an annuity should be considered before or after retirement, but which type of annuity may fit your goals, timeline, and income needs. A financial advisor can help evaluate whether an annuity fits into the broader retirement income plan, which type of annuity to consider, and when it may make sense to consider one.
Below is a quick chart from Prudential Financial to help familiarize you with a few types of annuities.1
| Annuity type | How it works | Best for |
|---|---|---|
| Fixed Annuity | Guarantees your principal and offers a stated rate of interest during a set period. Provides certainty and predictable payments once income is elected. | Conservative investors seeking stability and guaranteed returns |
| Variable Annuity | You choose from various investments that follow the market—offering unlimited growth potential, but also higher risk. | Investors comfortable with market volatility seeking higher growth potential |
| Deferred Annuity | Purchased years before you plan to retire. You can set up a regular contribution schedule and pay into the annuity over time until you're ready to take payments. | Those still working who want to build retirement income for the future |
| Immediate Annuity | Purchased with a single lump sum when you want to begin receiving payments. Often used by retirees who take money from retirement accounts to create guaranteed cash flow for essential expenses. | Retirees who need guaranteed income to cover essential expenses now |
When an annuity makes sense—and why
If you're wondering whether an annuity might fit into your retirement plan, it may help to start with the challenges you're trying to solve. The following scenarios are among the most common reasons retirees consider guaranteed lifetime income.
1. When paychecks stop and you want predictable monthly income
An annuity can help replace part of a regular paycheck with a steady retirement income if you decide to stop working or work part-time. Some retirees use annuities to help create a predictable income stream alongside Social Security and other retirement resources.
2. When Social Security alone may not cover monthly expenses
An annuity can provide supplemental income, helping cover essential expenses when Social Security alone may not be enough. For retirees who expect a gap between their monthly income and spending needs, guaranteed income can provide greater confidence that core expenses such as housing, healthcare, utilities, and food can continue to be covered throughout retirement.
3. When you’re worried you may outlive your savings
You’re not alone if you’re second-guessing whether you’ve saved enough money. One of the biggest retirement risks is longevity risk, or living longer than expected. Income annuities are specifically designed to help address this concern.
4. You’re not sure how to draw down your retirement savings accounts
Research by David Blanchett, Head of Retirement Research at Prudential and Portfolio Manager at PGIM, and Michael Finke found that annuities can give people who are hesitant to draw down their savings a “license to spend” because they’re more comfortable using protected income instead of tapping into their nest eggs.2 For some retirees, the challenge is not building retirement savings but feeling confident enough to use those savings. In these situations, guaranteed lifetime income may help make retirement spending feel more sustainable and predictable.
5. You’re worried about market volatility
People whose retirement savings are closely tied to market performance may value having a portion of their income guaranteed regardless of market conditions. By creating a source of predictable income that is not dependent on investment performance, an annuity can help provide greater confidence and stability during periods of market uncertainty.
6. You have a large pool of assets, but no pension
Approximately 29% of American workers have an employer-sponsored defined-benefit pension—leaving the vast majority on their own to figure out their retirement savings.3 Annuities can help fill this gap by creating a source of income that functions similarly to a personal pension. Rather than relying entirely on withdrawals from investment accounts, some retirees choose to allocate a portion of their savings to guaranteed lifetime income while keeping the remainder invested for flexibility and future growth.
A retirement income calculator, such as the one from Prudential, can also help you figure out if an annuity benefits your retirement plan by estimating how savings, expected income, and future expenses may work together over time.4 The goal is not to make a final decision from a calculator alone, but to better understand whether there may be an income gap or a need for more predictable retirement income. If you have unanswered questions, it may be beneficial to consider consulting with a financial advisor who can provide expert advice tailored to your unique financial situation.4
When an annuity may not work
Although annuities can provide valuable benefits, they are not appropriate for every retiree or every financial situation. The decision is often based on a tradeoff between guaranteed income, liquidity, growth potential, and legacy goals.
1. You may need access to the money in the near future
Annuities are generally designed for long-term retirement income. If you expect large expenses, want substantial emergency reserves, or are unsure how much liquidity you'll need, locking up assets in an annuity could limit flexibility.
2. You already have enough guaranteed income to cover your essential expenses
If Social Security, a pension, and other reliable income sources already meet your core spending needs, the additional income guarantee from an annuity may be less valuable than maintaining access to your assets and investment flexibility.
3. You're primarily focused on maximizing growth potential
Annuities are often used to provide income certainty and protection, not necessarily to generate the highest possible investment returns. Retirees with a longer time horizon, higher risk tolerance, and less concern about income guarantees may prefer to keep more assets invested.
4. You have significant health concerns that may shorten your retirement horizon
Annuities that provide lifetime income may be less attractive to someone who does not expect to benefit from decades of future income payments.
5. You're confident creating your own retirement paycheck
Some retirees are comfortable following a withdrawal strategy, adjusting spending as needed, and managing market fluctuations. If you're confident drawing down your retirement accounts, the additional structure of an annuity may not be as attractive.
6. Leaving assets to heirs is a higher priority than guaranteed income
Depending on the type of annuity selected, a portion of the assets used to purchase the contract may no longer remain available to pass on as part of an estate. Retirees with strong legacy goals may wish to weigh this tradeoff carefully.
In the end, an annuity is not a one-size-fits-all solution. The decision typically comes down to four key considerations: income needs, liquidity needs, confidence managing withdrawals, and legacy goals.
The bottom line
Retirees often consider annuities when they are transitioning from saving for retirement to generating income from retirement savings. This can happen in the years leading up to retirement, at retirement, or even after retirement begins.
Annuities may be particularly helpful for people who want guaranteed lifetime income, are concerned about outliving their savings, do not have a pension, or are uncomfortable drawing down their retirement accounts. They may be less valuable for individuals who prioritize liquidity, expect significant near-term expenses, or are comfortable managing retirement income entirely on their own.
The key question is rarely whether annuities are universally good or bad. Instead, it's whether a specific type of annuity helps solve a specific retirement income challenge at the right time and as part of a broader retirement income plan.
Learn how Prudential can help you protect your life’s work.
Citations:
1 “What are annuities?” Miranda Marquit, Prudential Financial, March 3, 2026, 1074877-00003-00.
4 “Retirement Income Calculator,” Prudential Financial, 1079649-00004-00.
Annuities are issued by The Prudential Insurance Company of America, Newark, NJ, and its affiliates.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Annuity guarantees are dependent on the claims-paying ability of the issuing company.
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