Should an 85-Year-Old Buy an Annuity? The Honest Truth You Need to Hear

Are you or someone you care about in their mid-80s thinking about buying an annuity? Maybe you’ve been to one of those “free dinner” financial seminars or an advisor has told you that it could be a good way to make sure you have money in your later years. Let’s take a close look at whether annuities make sense for you at this point in your life before you sign anything.

I’ve researched this topic extensively, and what I’ve found might surprise you. The truth is, most annuities are NOT a good fit for people over 85 – but there are some exceptions worth considering.

Understanding Life Expectancy and Annuity Returns

Let’s start with a critical fact according to the Center for Disease Control, an 85-year-old male will live, on average, an additional 6.5 years (to age 915) This life expectancy statistic is absolutely crucial when evaluating annuities.

Why? Because most annuities need time to provide value, and at 85, time is limited.

For example, if an 85-year-old invests $100,000 in an immediate annuity with lifetime income guarantees, they might receive about $12,000 per year. If they live the average 6.5 years, they’ll only receive $78,000 back – a terrible return on investment!

Someone who invests $100,000 would get $180,000, even if they live to be 100 years old and come from a family with genes that make people live long. That’s better, but is the risk worth it? Most money experts say no.

Types of Annuities and Their Suitability for 85+ Investors

Not all annuities are created equal. Let’s look at the main types and see if they make sense for an 80-year-old person:

1. Immediate Annuities with Lifetime Income Guarantees

Recommendation: Generally NOT suitable for 85+ investors

• Pros: Guaranteed income for life
• Cons: Poor return on investment unless you live well beyond average life expectancy
• Bottom line: The math simply doesn’t work out unless you’re extremely confident about living into your late 90s or beyond

2. Period Certain/Cash Refund Immediate Annuities

Recommendation: Potentially suitable in specific situations

• Period Certain: For example, a 15-year period certain annuity might pay about $7,800 annually for 15 years on a $100,000 investment. If the investor dies before the period ends, beneficiaries receive the remaining payments.
• Cash Refund Option: Guarantees about $8,500 annually with a promise that beneficiaries receive the difference between initial investment and amount paid if the investor dies before recouping their initial investment.
• Bottom line: Cash refund immediate annuities can be viable if you want income plus ensuring money passes to heirs

3. CD-Type Fixed Annuities

Recommendation: Potentially suitable with cautions

• Pros: Guaranteed capital and fixed returns
• Important considerations: Only consider those that waive surrender penalties upon death and avoid those with market value adjustments
• Bottom line: Can be viable for 85+ investors, but read the fine print carefully

4. Variable Annuities with Lifetime Income Benefits

Recommendation: Generally NOT suitable for 85+ investors

• Very few insurance companies will issue these to someone 85+
• A typical 5% withdrawal rate would mean just $5,000 annually on a $100,000 investment
• By average life expectancy (91.5), you’d receive only about $32,500
• Bottom line: Doesn’t provide enough income and remaining balance is typically lost upon death

5. Variable Annuities with Return of Premium Death Benefits

Recommendation: Potentially suitable for specific goals

• These allow market participation while guaranteeing heirs receive at least initial premium amount (less withdrawals) upon death
• Offers protection against market downturns for estate planning purposes
• Bottom line: May be viable for those who want market participation with principal protection for heirs

Red Flags and Warning Signs to Watch Out For

The Minnesota Attorney General’s office warns seniors about several questionable practices in the annuity industry:

Beware of High-Pressure Sales Tactics

• “Free” dinner seminars that are actually sales pitches
• Agents who cold call or show up unannounced
• “Limited time offers” designed to rush decisions
• Salespeople who don’t want family members present

Watch Out for Excessive Surrender Charges

• Some annuities charge penalties as high as 17-25% for early withdrawals
• One Minnesota senior faced an annuity with surrender charges lasting until age 95!
• Another retired farmer was charged $6,800 in penalties when he needed to access his $24,000 investment

Questionable Marketing Practices

• “Bonuses” that are offset by higher fees
• Claims that annuities are “just like CDs but better”
• Agents encouraging switching from one annuity to another (“churning”)
• Misrepresentations about tax benefits

The Smart Approach: What Should an 85-Year-Old Consider Instead?

In the end, should an 85-year-old buy an annuity? Most of the time, NO. But there are exceptions:

1. CD-type fixed annuities with no surrender penalties upon death and no market value adjustment might be appropriate in some cases.

2. Cash refund immediate annuities could make sense if guaranteed income plus return of premium to heirs is important.

3. Variable annuities with return of premium death benefits might work for those wanting market participation with principal protection for heirs.

However, for most 85-year-old investors, other options are likely more suitable:

• Certificates of Deposit (CDs) provide guaranteed returns without complicated contracts
• Treasury bills or bonds offer government-backed security
• High-yield savings accounts maintain liquidity for healthcare or living expenses
• Simple investment portfolios designed for income and preservation of capital

A Checklist Before Making Any Decision

If you or a loved one is still considering an annuity at 85+, please take these steps:

• Consult with a fee-only financial advisor who isn’t compensated for selling products
• Involve trusted family members in all discussions
• Get a second (and third) opinion
• Read ALL the fine print, especially about surrender charges
• Consider how much access to capital might be needed for healthcare or living situation changes
• Understand exactly how beneficiaries will be treated
• Compare with simpler alternatives like CDs or Treasury securities

Real Talk: The Sales Pressure Problem

Let’s be real for a minute. Insurance companies sometimes offer commissions as high as 10% to agents who sell long-term deferred annuities to seniors. That creates a powerful incentive for them to sell products that may not be in your best interest.

As one expert says, “Always tell yourself to swallow the food rather than the sales pitch” if you attend one of those free dinner seminars!

The Bottom Line

At 85, most annuities simply don’t make mathematical sense. The combination of limited life expectancy and the structure of most annuity products means you’re unlikely to receive a good value.

The exceptions might be certain cash refund immediate annuities, carefully selected CD-type fixed annuities, or variable annuities with return of premium death benefits – but ONLY after careful consideration with trusted advisors.

Remember that simplicity, flexibility, and liquidity become increasingly important as we age. Any financial product that ties up money with surrender penalties or complex terms deserves extreme scrutiny.

Have you or a family member dealt with annuity decisions late in life? I’d love to hear your experiences in the comments below!

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Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial professional before making investment decisions.