Annuities Offer Guaranteed Income but Carry Liquidity and Inflation Risks

Annuities deliver a guaranteed stream of income each month regardless of stock market performance. " Higher current interest rates also allow some annuities to exceed rates on certificates of deposit while adding tax deferral.

Some annuities include optional riders that cover long-term care expenses. Long-term care costs have risen between 22 percent and 50 percent since 2019, according to an AARP analysis. Elkins noted that certain riders can help offset future nursing-home costs for clients who cannot obtain traditional long-term care insurance.

Annuities have produced higher returns than bonds over the past decade while maintaining a comparable level of safety, Elkins said.

Fixed annuity payments lose purchasing power if inflation continues to rise. S. 8 percent, its highest level in almost three years. Candace Mills, financial advisor at Georgia's Own Investment & Retirement Services, said investors risk missing higher yields if interest rates increase after purchase.

Annuity contracts impose surrender periods that limit access to funds without penalties. Angie Welsh, founder and president of My Annuity Agents, said some contracts are irrevocable. Welsh advised against placing more than 50 percent of investable assets into annuities.

Dan Simon, retirement planning advisor at Daniel A. White & Associates, said buyers should review the insurance carrier's financial ratings before purchase because guarantees depend on the carrier's claims-paying ability. People under age 50 and those needing liquidity or market growth should generally avoid annuities, Welsh said.