Annuities: when do they actually make sense, according to the Ramsey show?

During a February 2025 episode, a caller expressed concern about an annuity not generating returns. The hosts responded, stating annuities are generally unsuitable, suggesting variable annuities are preferable but still not ideal. They cautioned against annuities being used to exploit fear of the stock market and highlighted the risk of missing out on potential returns. Later, in July 2025, the show softened its stance, noting annuities are “not evil” but pointing out limitations in accessing funds, often requiring a seven-year hold.

In 2026, George Kamel illustrated the potential returns of the stock market compared to a $250,000 annuity for long-term care, while Jade Warshaw addressed a caller’s situation involving a fixed annuity with high fees and a substantial 11% surrender charge.

The show’s primary concerns revolve around liquidity and cost. While the national average 12-month CD yield stood at 1.76% as of October 1, 2026, offering a modest return with readily available funds, annuities often carry surrender charges that penalize early withdrawals. Clark Howard warned of potential “prisoner” status for annuity buyers lasting up to 15 years.

One common scenario where the Ramsey Show’s advice aligns is for individuals with existing pension income, like a caller who already received a teacher pension alongside Social Security benefits, estimated at $2,071 per month after a 2.8% cost-of-living adjustment in 2026.

However, exceptions exist. Retirees lacking a pension and facing essential expenses exceeding their Social Security income may benefit from an income annuity, which pools longevity risk. Wes Moss, on The Clark Howard Podcast, noted research suggesting income annuities can encourage responsible spending. The show acknowledges this, stating, “You don’t need to be in annuities unless you’re just scared to death or something.”

It’s crucial to assess the financial strength of the insurance company backing the annuity and understand state guaranty association limits. Comparing an annuity to delaying Social Security, which increases lifetime benefits with COLA adjustments, is also advisable. Tax considerations are important: under 26 U.S.C. § 72(b)(1), the portion of annuity payments representing invested capital is excluded from income until the initial investment is recovered, as per § 72(b)(2).

Retirees who have previously sold investments during market downturns and missed subsequent recoveries may also find value in annuities to mitigate volatility. Finally, individuals with substantial traditional IRAs can utilize qualifying longevity annuity contracts (QLACs) under 26 U.S.C. § 401(a)(9)(A) and 26 CFR 1.401(a)(9)-6(q) to defer required minimum distributions until age 85 (or later), reducing early withdrawals and funding later-life income. Premiums for QLACs are subject to IRS limits, and the insurance company must report premiums and fair market value under 26 CFR 1.6047-2(a)(2).

The Ramsey Show’s guidance generally applies to those with pensions, those still saving, those comfortable weathering market fluctuations, or those pressured into long-term contracts. Exceptions include retirees without pensions facing high expenses, those who’ve sold during market downturns, and those with large IRAs seeking to delay RMDs. For these individuals, a carefully sized income annuity or QLAC, evaluated with consideration for insurer strength and state guarantees, may be worthwhile. Keep an eye on the upcoming 3.6% COLA adjustment and the IRS’s next QLAC premium limit.