What Is the Primary Reason for Buying an Annuity?
The primary reason people buy an annuity is to guarantee income they cannot outlive. Here is why longevity risk drives the decision and when an annuity beats the alternatives.
The Primary Reason: Longevity Risk
The single most common reason people buy an annuity is to eliminate the risk of outliving their savings. Financial planners call this longevity risk, and it is the one problem an annuity solves better than any other financial product.
A 65-year-old couple today has roughly a 50% chance that one spouse lives to 92, and a 25% chance one lives to 97. That is potentially 30+ years of retirement to fund — long enough for sequence-of-returns risk, inflation, and bad market timing to drain a portfolio that looked perfectly adequate at age 65.
Why "Just Invest" Does Not Always Work
The 4% withdrawal rule assumes a static market and a 30-year retirement. Two things break it: a bad market in your first decade of retirement, and simply living longer than the model assumed. An annuity removes both variables — the insurer takes the longevity risk and the investment risk and converts your balance into a paycheck for life.
Secondary Reasons (Real, But Not Primary)
| Reason | Share of Buyers | Best Product Fit |
|---|---|---|
| Lifetime income guarantee | ~60% | SPIA, DIA, fixed-indexed w/ rider |
| Tax-deferred growth | ~20% | MYGA, fixed-indexed |
| Principal protection | ~12% | MYGA, fixed-indexed |
| Estate / legacy planning | ~8% | Variable w/ death benefit |
How an Annuity Compares to the Alternatives
Before buying, it is worth seeing what the same dollars do elsewhere. A 5-year MYGA competes directly with top CD rates, and a high-yield savings account wins for liquid cash. The annuity earns its premium when you need guaranteed lifetime income — not just a yield.
- No pension and Social Security alone is not enough
- You are healthy and family history suggests long life expectancy
- Market volatility keeps you up at night
- You want a stable income floor under your discretionary spending
- You already have a pension covering essential expenses
- You are in poor health (life expectancy below average)
- You need the money liquid in under 10 years
- You prioritize leaving the principal to heirs over income
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