Personal Finance for Long-Term Investors - The Best Interest

Less Wealth, More Certainty: Why Annuities Are Rarely Worth It (E131)

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Feb 25, 2026

A contrarian deep dive into annuities that separates fixed, variable, and indexed products. Clear breakdown of why most annuities have high fees, poor expected returns, and illiquidity. A case for single premium immediate annuities as longevity and sequence-of-returns insurance. Exploration of ergodicity, tail risks, Monte Carlo limits, insurer credit risk, and when insurance-like tradeoffs can reduce ruin.

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INSIGHT

Annuities Are Insurance Not Investments

Annuities are insurance contracts where you give a lump sum to an insurer in exchange for a lifetime income stream.
Jesse Cramer stresses most annuities are costly, illiquid, and lower-return products, so treat them as insurance not investments.

ADVICE

Avoid Variable And Indexed Annuities

Avoid most variable and indexed annuities because they cap upside and charge ~2%+ annual fees plus large commissions.
Jesse demonstrates capped participation rates and fees drastically reduce long-term compounded returns versus the S&P 500.

INSIGHT

Annuity Credit Risk Is Real But Often Mitigated

Annuities are creditor obligations of insurers, not federally backed like Treasuries or Social Security.
Jesse outlines state regulation, guarantee associations, and creditor priority as multiple protective layers making insurer failure rare and recoveries common.

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In this expansive and deliberately contrarian episode, Jesse takes on annuities—not with a sales pitch or a blanket dismissal, but by putting them under a rigorous planning lens rooted in risk, probability, and real retirement outcomes. He begins by laying out what annuities actually are, clearly separating fixed annuities from their variable cousins, and explaining why high fees, capped upside, illiquidity, and poor expected returns make most annuity products deeply unattractive. From there, Jesse zeroes in on the one annuity type he considers intellectually defensible in narrow circumstances: the single premium immediate annuity (SPIA), framing it not as an investment but as insurance against longevity and sequence-of-returns risk. The heart of the episode introduces the concept of ergodicity and uses vivid examples to show how retirement planning is fundamentally non-ergodic, dominated by tail risks, bad timing, and one irreversible life path. Through this lens, annuities are reframed as a tradeoff: a high probability of modest financial loss in exchange for protection against a low-probability but catastrophic retirement failure. Jesse closes by emphasizing that annuities, when used correctly, dull both the upside and the downside—reducing the chance of ruin at the cost of lower lifetime wealth—and that whether that trade is worth making depends not on averages or rules of thumb, but on an individual's specific risks, values, and tolerance for uncertainty.

Key Takeaways: • Most annuities are expensive, illiquid, and poorly designed. Annuities are insurance products, not investments. • SPIAs are the simplest and most transparent annuity structure. SPIAs insure against longevity and sequence-of-returns risk. • Retirement planning is a non-ergodic problem. Average outcomes do not reflect individual retiree experiences. • Monte Carlo averages can hide catastrophic failures. • Annuities pool longevity risk across many people. Most annuity buyers will "lose" financially on average. • The annuity decision is a personal risk-management choice, not a math trick.

Key Timestamps: (01:39) – Diving into Annuities (07:39) – Understanding Variable and Fixed Annuities (15:38) – Risks and Protections of Annuities (19:58) – Single Premium Immediate Annuities (SPIAs) (26:24) – Understanding Ergodic Systems (30:36) – The 4% Rule and Sequence of Returns (34:44) – Tail Risks and Longevity in Retirement (46:52) – The Role of Annuities in Retirement Planning

Key Topics Discussed: The Best Interest, Jesse Cramer, Wealth Management Rochester NY, Financial Planning for Families, Fiduciary Financial Advisor, Comprehensive Financial Planning, Retirement Planning Advice, Tax-Efficient Investing, Risk Management for Investors, Generational Wealth Transfer Planning, Financial Strategies for High Earners, Personal Finance for Entrepreneurs, Behavioral Finance Insights, Asset Allocation Strategies, Advanced Estate Planning Techniques

Mentions: https://www.fortunesandfrictions.com/post/one-in-a-quadrillion https://bestinterest.blog/e127/

More of The Best Interest: Check out the Best Interest Blog at https://bestinterest.blog/ Contact me at jesse@bestinterest.blog Consider working with me at https://bestinterest.blog/work/

The Best Interest Podcast is a personal podcast meant for education and entertainment. It should not be taken as financial advice, and is not prescriptive of your financial situation.