Next Wave Options
Independent life insurance and retirement income agency serving Salinas and Monterey County.
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Independent life insurance and retirement income agency serving Salinas and Monterey County.
Get a quote
If you have listened to Dave Ramsey for any length of time, you have heard him say he does not like annuities. Plenty of people arrive at a first meeting with that already settled, and they are right to bring it. This page states his position as fairly as we can, agrees with the parts that are correct, which is most of them, and then explains the narrow situations where a blanket rule stops working. We are an insurance-licensed agency and we do place annuity contracts, so read this knowing that and judge the argument on its merits.
The core of it is not complicated, and it is not unreasonable.
We agree with all five. We would add that the same criticism applies with extra force to the way these products are sometimes marketed to people over 65, which is why California regulates that marketing specifically and why our carrier evaluation guide exists.
A rule that is right most of the time is still a rule, and rules have edges. Three situations sit at the edge.
Longevity. A portfolio can be drawn down to nothing; a lifetime income contract cannot. For someone with a family history of living into their nineties, no pension and savings that are adequate but not generous, the risk that matters is not a bad decade in the market. It is being 92 with the account empty. No investment insures against that, because investments do not know how long you will live.
Sequence of returns at the retirement threshold. Two retirees with identical average returns can end up in very different places depending on whether the bad years came first. Someone retiring into a sharp fall while withdrawing for living expenses sells shares at depressed prices and permanently reduces what is left to recover. Covering the essentials from something that does not move means you are not a forced seller. Our protection page explains this in full, and note that the fix there is usually not a product.
Behaviour. A strategy on paper only works if the person follows it. Someone who sold in every downturn of their working life is unlikely to become disciplined at 68. For that person, a smaller guaranteed income they will not touch can beat a better plan they will abandon.
| Point | Agreed? |
|---|---|
| Most people under 50 do not need an annuity | Yes |
| An annuity should never hold an entire retirement balance | Yes |
| Fees and surrender terms must be understood before signing | Yes |
| Variable annuities sold on projected returns deserve deep suspicion | Yes |
| Delaying Social Security is usually the best lifetime income available, and it costs nothing | Yes |
| Emergency money belongs somewhere liquid, never behind surrender charges | Yes |
| Nobody needs one, ever, under any circumstances | This is where we part company |
That list is longer than most people expect, and the honest summary is that the disagreement is narrow. It is about a minority of retirees with a specific income gap, not about the product being suitable in general.
Skip the argument and do the arithmetic. Add up the expenses that must be paid every month for the rest of your life. Add up the income guaranteed for life: Social Security, any pension, anything you already own that pays for life. Subtract. If the guaranteed side covers the essentials, you do not have the problem an income annuity solves, and the blanket rule is right for you. If a gap remains, the question becomes whether covering part of it with a contract is worth the access you give up, and that is a conversation about numbers rather than philosophy. Our income calculator does the subtraction in a few minutes and asks for no email address.
If you decide against it, nothing is lost. If you decide part of the gap is worth covering, our annuities page leads with the disadvantages, which is the right order, and what is better than an annuity works through the alternatives worth exhausting first.
He is broadly against them, on the grounds that costs are high and often hidden, the money is locked up by surrender charges, the products are complex, and long-term growth has historically come from staying invested. Most of that is accurate, and we say so.
He is right that an annuity is a poor substitute for long-term investing, and right that many are sold to people who do not need one. The narrower point the blanket rule misses is longevity: a portfolio can run out and a lifetime income contract cannot, which matters for a retiree with no pension and a long life expectancy.
Do the arithmetic before deciding. If Social Security and a pension already cover your essential monthly expenses, you do not have the gap an income annuity fills, and the rule is right for you. If a gap remains, the decision is about that gap only, never the whole balance.
They are real, particularly on variable contracts and on optional riders that charge every year whether or not they pay off. Ask for the surrender schedule year by year and the annual cost of every rider in writing; any agent who resists that has told you something useful.
Delaying Social Security is the closest thing: it is inflation-adjusted and costs nothing but patience. Bond ladders, cash reserves and simply staying invested cover part of it too. Our page on what is better than an annuity works through each.
Yes, which is why this page states the case against them at length before anything else. We place them only where an income worksheet shows a real gap, only for part of a balance, and with the surrender schedule and limits on the page before any benefit.
Ready to talk it through? No cost, no obligation, in English or Spanish.
Schedule a CallReviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.
