Retirement Annuities: Overview, Types, Pros & Cons, Alternatives

It provides guaranteed retirement income, but there are downsides to know about.

By Robin Hartill, CFP – Updated Dec 21, 2025 at 11:29 AM EST | Fact-checked by Frank Bass

Key Points

Retirement annuities guarantee income but have high fees and complexities.
Annuities offer tax-deferred growth; income options include lifetime or fixed-term payouts.
Alternatives like Social Security and dividend stocks offer income without annuity drawbacks.

A retirement annuity provides guaranteed income in your senior years. That may sound like a solution you need -- particularly if you don't know how long your savings will last. But, like any financial strategy, annuities have their drawbacks. To avoid unpleasant surprises later, it's smart to evaluate the pros and cons before you lock up your cash in an annuity.

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An infographic outlining five common types of retirement annuities. — Image source: The Motley Fool.

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Pros

Cons

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Dividends: Dividend stocks could also generate lifelong income. Unfortunately, this is not guaranteed. A company always has the option to lower, suspend, or cancel its dividend.

The good news is that some dividend stocks are more reliable than others. Dividend Aristocrats® (the term Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC), for example, are companies that have paid and increased their dividends for 25 or more consecutive years. There's also a group of 50-year dividend increasers called Dividend Kings.

Dividend Aristocrats and Dividend Kings don't guarantee dividends, but they won't be quick to cancel a dividend, either. If you can handle some risk, these stocks are suitable options for retirement income.

Relative to annuities, dividend stocks have more uncertainty but greater income potential. You'll earn the dividend income, plus your stocks should also appreciate over time.

The premium for guaranteed income

A retirement annuity guarantees income for a specific duration or for the rest of your life. That guarantee can be comforting, especially if you're worried about outliving your savings. A big downside is that annuities charge a premium for the peace of mind they provide.

Fortunately, you don't necessarily have to choose between an annuity and other income strategies.

Your retirement plan can incorporate multiple income sources -- an annuity, a strategically timed Social Security benefit, plus dividend income, for example. Diversifying in that way can soften the drawbacks of each income source, including your annuity's fees and the uncertainty of a dividend portfolio.

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About the Author

Robin Hartill, CFP, is a contributing writer at The Motley Fool. Robin’s work has also been published by Yahoo Finance, USA Today, and Penny Hoarder. She is a graduate of the University of Florida.

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