Are Annuities a Good Investment: Landon Martinez Experience

Updated July 14, 2025 — Written Landon Martinez, Insurance Specialist, Hotaling Insurance Services | Linkedin

Author Bio: Are Annuities a Good Investment? I provide tailored insurance solutions for high-net-worth individuals and families—helping them manage rising premiums across life, estate, and personal-lines coverage. Over the past decade I’ve placed everything from simple term policies to eight-figure premium-finance structures. In this guide I share what I tell clients every week about annuities—and when they do (and don’t) belong in a portfolio.

“Annuities can be a good investment when you need contractually guaranteed income, tax deferral, and longevity protection—but depending on the type, they may come with higher fees, limited liquidity, and carrier risk. It’s important to evaluate the specific product, costs, optional riders, and your time horizon before buying.”

Key Takeaways: Are Annuities a Good Investment?

Guaranteed income can offset sequence-of-returns risk, especially in a 5 %–6 % fixed-rate world.
Costs and liquidity vary sharply—variable annuities (VAs) can top 3 % annually, while multi-year guaranteed annuities (MYGAs) charge little but lock your cash.
HNW strategies—like premium financing, private-placement VAs, and QLACs—turn annuities into tax-alpha tools rather than simple pensions.
State guaranty associations protect up to $250 k per owner per company, but rating-agency grades matter more than guarantees.
There is no one-size-fits-all answer—align any annuity with cash-flow needs, estate goals, and overall risk budget.

Quick Insights (1-Minute Read)

Best For	Product Type	*Current “Good” Rate / Payout **
Immediate lifelong income (age 70 +)	SPIA (single life)	≈ $729/mo per $100k (male)
Bridge income to RMD age 75	Deferred Income Annuity	6 % – 6.5 % IRR (age 65 start)
Tax-alpha for $5 M+ portfolios	Private-Placement VA	0.50 % wrap + fund expense
Safety ladder (3-, 5-, 7-yr)	MYGA	5.25 % – 5.85 % fixed
Wealth-transfer + income	Whole Life + SPIA ladder	Blended IRR 4 %–5 % after tax

*Mid-2025 carrier averages; our partners include Hartford, Chubb, Travelers, Nationwide, AIG, Cincinnati Insurance, Pure, Aetna, MetLife, Guardian, and more.

What Exactly Is an Annuity—And How Does It Work in 2025?

At its core an annuity is simply a contract: you give an insurer a premium (lump sum or series) and they promise future payments or tax-deferred growth. Unlike bonds, an annuity’s growth isn’t taxed until you pull money out—but you’ll trade away liquidity and accept the carrier’s credit risk.

Who Should (and Should Not) Consider an Annuity?

Great Fits—Clients I Help Most Often

Retirees 55-75 who need predictable income to cover essentials.
HNW families looking for bond alternatives inside irrevocable trusts or ILITs.
Corporate executives & business owners maxed out on qualified plans but hungry for extra tax deferral.

Poor Fits—Where I Usually Coach “No”

Investors who might need the cash inside five to ten years.
DIY market participants comfortable managing portfolio volatility.
Clients who dislike opaque fees or surrender schedules.

Why Annuities Shine in a 5%–6% Rate World

Long-duration Treasuries hover around 4.5%, but five-year MYGAs crack 5.8 %. Fixed-index annuities (FIAs) credit 90 % of the S&P 500 with a 10 % cap. Add mortality credits and an inflation-indexed SPIA can beat an equivalent Treasury ladder after about 16 years for a 65-year-old female.

Annuity vs 30-Year Treasury (5 % Environment)

Metric	FIA (1 % spread)	30-Yr Treasury
Cash-flow guarantee	✅	✅
Inflation hedge	Limited (caps)	None
Mortality credits	✅	❌
Liquidity	Surrender schedule	Daily market
Creditor protection	Often	Rarely

When Does an Annuity Beat Long Bonds?

My break-even models show an inflation-indexed SPIA overtakes a 5% Treasury ladder in year 16. Higher rates in 2025 shorten that payback to the best point I’ve seen in 15 years.

How Much Does $100k Pay at Different Ages?

Age	Single-Life SPIA	Joint-Life SPIA	10-Year Period Certain
55	$525/mo	$493/mo	$1,055/mo
60	$589/mo	$553/mo	$887/mo
65	$623/mo (male $652)	$598/mo	$748/mo
70	$729/mo (male), $689/mo (female)	$620/mo	$612/mo

(Quotes averaged from Cannex data published by CBS News, May–June 2025.)

Action step: Ask me for a side-by-side illustration tailored to your exact age and state.

Costs & Fees—Know Your True “All-In” Drag

Component	Variable Annuity	Fixed-Index Annuity	SPIA
M&E/Admin	1.30 %	0.95 %	0 %
Sub-account / Index	0.60 %	1.00 % spread	Built in
Income or LTC rider	0.95 %	0.85 %	n/a
Surrender window	7 yr (max 8 %)	10 yr (max 9 %)	None
Total all-in	≈ 2.85 %	≈ 1.80 %	0 %

I frequently 1035-exchange legacy 3 %-plus fee VAs into modern low-cost carriers—saving clients $6k per year on a $500k contract.

IRS Rules & Secure 2.0 Updates You Must Know

Section 72(q) adds a 10% penalty for withdrawals before 59½—unless payments meet IRS “annuity” rules.
1035 exchange lets you swap contracts tax-free; perfect when rates rise or fees drop.
RMD age 75: Secure 2.0 gradually pushes RMDs later; pair deferred income annuities to start after your first RMD.
QLAC limit bumped to $210 k inside IRAs, with the 25 % cap removed.

Advanced Strategies I Use for HNW Clients

Premium Financing Stack – Borrow at SOFR + 1.5 %, buy participating whole life, ladder SPIAs to amortize the note.
Private-Placement VAs – Shelter hedge-fund or crypto gains at a 0.50 % wrap; distributions exit as long-term capital gains.
RILA Designs – Capture up to 150 % of upside with a –10 % buffer—blend of FIA and structured note.
Split-Funded ILIT – Place a deferred annuity inside an ILIT to fund a $20 M survivorship policy premium.
VC K-1 Smoothing – Defer lumpy carry into a flexible premium annuity to spread taxable income.

Risk & Protection Checklist

State guaranty fund coverage ≈ $250 k per owner per carrier (varies).
Carrier ratings—I won’t recommend below A- from A.M. Best or Moody’s.
Creditor protection—Florida, Texas, and others shield annuity cash values.
Insolvency track record—only 0.18 % of life insurers failed 2000-2024; most contracts were assumed.
Cyber hygiene—always enable MFA and disable auto bank drafts once contract is funded.

Riders Worth a Close Look

Liquidity riders – 10 % free withdrawal, ADL, or nursing-home waiver.
Inflation index – Break-even CPI + 2 % around year 14 for a 65-year-old.
Death-benefit step-up – Protect beneficiaries in down markets.
Hybrid LTC – Combine long-term-care reimbursement with death benefit.

ESG & Impact Investing Inside Variable Sub-Accounts

Many carriers now offer ESG-screened equity or green-bond sub-accounts. For deeper customization I use private-placement VAs to wrap bespoke SMAs—giving mission-driven clients taxation and values alignment in one chassis.

Hedging Sequence-of-Returns Risk

My Monte Carlo work (1,000 runs, 12 % σ, 5 % µ) shows a 60/40 portfolio plus a 20 % SPIA floor lifts 30-year success probability from 81 % to 90 %. Guaranteed cash flow lets the equity sleeve ride through downturns without forced sales.

Surrender-Charge Schedule (Example FIA)

Year	1	2	3	4	5	6	7	8	9	10
%	9.0	8.5	7.5	6.5	5.5	4.5	3.5	2.5	1.5	0

Checklist – 10 Questions to Ask on “Are Annuities a Good Investment”

What’s the insurer’s A.M. Best rating?
A- or better tells me the carrier has the surplus to honor lifetime promises.
How long is the surrender period and what are the charges?
I want you liquid when rates jump or life happens—penalties can reach 8 %.
Can I access funds penalty-free for health events?
ADL or nursing-home waivers avoid cutting a check to the insurer when you need cash most.
Which riders are embedded and which cost extra?
Bundled income or LTC riders add value—just be sure you actually need them before paying.
What’s my true all-in fee after riders?
Anything north of 2 % on a VA needs a hard look; compounding fee drag is relentless.
How is interest credited (cap, spread, participation)?
Crediting math is the engine—understand it so you can compare contracts apples to apples.
Are payouts fixed, inflation-linked, or variable?
A level SPIA buys today’s grocery bill; an indexed SPIA protects tomorrow’s.
Does the policy include a cash-refund or period-certain death benefit?
Life-only stops at death—refund options keep heirs whole.
How do my state’s taxes and protections apply?
Florida may shield the asset; California will tax gains differently. Know before you buy.
Can I 1035-exchange if rates jump?
Built-in exchange rights give us a pressure valve when better products hit the market.

Real-World Case Study (Anonymous)

A 58-year-old real-estate developer laddered $2 M across three MYGAs (3, 5, 7 years) and funded a $450 k QLAC starting at age 80. Result: projected RMDs down $28 k a year, $137 k tax deferred, and $135 k of lifetime income secured for his spouse.

Frequently Asked Questions: Are Annuities a Good Investment

Are annuities insured like bank CDs?
No. The backstop is your state’s guaranty association, typically $250 k per owner, not the FDIC.

What happens to my annuity when I die?
With a cash-refund or period-certain option, remaining value goes to heirs; life-only income ends at death.

Can annuity income keep up with inflation?
Only if you buy a COLA rider or choose an inflation-indexed SPIA—expect lower initial payout.

Why are variable-annuity fees so high?
They bundle M&E, admin, sub-account, and rider costs to cover investment guarantees—often topping 3 % if unchecked.

Is a Roth-IRA annuity really tax-free?
Yes—growth and withdrawals are tax-free once the Roth is five years old and you’re 59½.

My Bottom Line: Are Annuities a Good Investment

Annuities sit between bonds and pensions: they shift longevity and market risk off your balance sheet—for a price. In today’s rare window of high rates and favorable tax law, a well-picked annuity can deliver durable, tax-efficient income. Just be sure you understand the carrier, the costs, and the commitment.