Is an Annuity for Me?

I have a question...

When people start thinking seriously about retirement, the question usually isn’t “How much money do I have?”

It’s “Will this actually last?”

For decades, Australians have relied on account-based pensions, dividends, rent, and maybe a bit of the Age Pension to fund retirement.

But annuities—once seen as old-fashioned or inflexible—are quietly making a comeback. In fact, super funds are now required to offer retirement income products, which means annuities are about to be much more visible.

So the real question becomes: is an annuity right for you?

The answer, as with any real answer to a question about your money - is complicated.

Let’s slow this down and unpack it properly.

What is an annuity, really?

At its simplest, an annuity is a trade.

You give a provider a lump sum, and in return they promise to pay you a regular income—often for the rest of your life.

That’s it.

There’s no market volatility to worry about, no drawdown rates to manage, and no fear of “running out” if you live longer than expected.

For many retirees, that certainty feels incredibly comforting. It can resemble the old defined-benefit pensions that quietly did their job in the background.

But certainty always comes with compromise.

Why annuities are getting attention again

One of the biggest reasons annuities have resurfaced is how they’re assessed by Services Australia for Age Pension purposes.

Unlike account-based pensions—where the full balance is assessed—annuities receive concessional treatment under both the income and assets tests.

In practical terms, that can mean:

• A higher Age Pension entitlement

• More predictable income

• Less sensitivity to market movements

  
  

For people sitting close to the pension thresholds, this can materially change their retirement income outcome.

This has led to a growing strategy we see in advice: income layering.

Income layering: security plus flexibility

Rather than putting everything into one solution, annuities are often used to create a secure “floor” of income.

Think of it like this:

• The Age Pension covers part of your essentials

• An annuity tops that up with guaranteed income

• An account-based pension sits on top, providing flexibility for travel, renovations, or helping family

Used this way, annuities aren’t replacing traditional retirement structures—they’re stabilising them.

The trade-offs you can’t ignore

Annuities aren’t magic. And they are absolutely not for everyone:

1. Flexibility is limited

Once your money is inside an annuity, access is usually restricted. You generally can’t pull out lump sums later if plans change or emergencies arise.

2. Inflation matters

Some annuities increase with inflation. Others don’t.

If you choose a fixed income, it may feel generous at the start but gradually lose purchasing power over time. Inflation-linked options exist—but they start lower.

3. Estate planning is different

With many annuities, once payments commence and a certain period passes, there may be little or nothing left to pass on.

For people who prioritise leaving capital to children or charities, this can be a deal-breaker.

This is often the moment where people realise: “This isn’t just a financial decision—it’s a values decision.”

Who tends to suit annuities best?

In our experience, annuities are often worth considering if you:

• Value certainty over optimisation

• Worry about longevity risk (living longer than expected)

• Are close to Age Pension thresholds

• Want simpler cash flow without ongoing decisions

• Already have enough flexibility elsewhere

  
  

They’re less attractive if flexibility, control, or leaving an inheritance is your top priority.

The real question isn’t “Are annuities good?”

It’s “What job do I want my money to do?”

Annuities are a tool. A very specific one.

When they’re used deliberately and in moderation, they can bring calm to retirement planning. When they’re used without understanding the trade-offs, they can feel restrictive later on.

Retirement isn’t about squeezing every last dollar out of your balance sheet. It’s about creating income you trust, from structures you understand, so you can get on with living.

If certainty helps you sleep better at night, an annuity might earn its place. If flexibility gives you peace of mind, it might not.

And that’s okay.

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