Celebrity Position Review Topic: Dave Ramsey on Annuities Last updated: 2026-06-27

Dave Ramsey Annuity Myth Busted

TL;DR: Dave Ramsey hates annuities — specifically variable annuities. His four complaints (high fees, complexity, low returns vs mutual funds, opportunity cost) are largely correct for VAs. They're mostly wrong for MYGAs. Ramsey's "12% mutual fund" assumption is fiction. A MYGA at 5.95% guaranteed beats a portfolio earning the actual S&P historical real return after Ramsey's own withdrawal rate (8%). Below: where Ramsey's right, where he's wrong, and when his advice doesn't apply to you.

What Dave Ramsey actually says about annuities

Ramsey's position, summarized from years of radio call-ins, books, and his website:

Annuities are loaded with fees — "1% mortality & expense, 1% sub-account, 1% rider, 1% surrender"
Annuities are too complex for the average consumer to understand
You can do better with growth-stock mutual funds (he assumes 12% annual returns)
Insurance companies don't give you something for nothing — the guarantee comes at a high cost

Ramsey rarely distinguishes between annuity types. He treats variable annuities, fixed indexed annuities, MYGAs, and SPIAs as the same product. This is the core of where his advice breaks down.

What Ramsey gets RIGHT

Variable annuities

Ramsey's critique of variable annuities is largely accurate. A typical VA carries:

1.25-1.50% Mortality & Expense charge
0.50-1.00% sub-account fees on the underlying mutual fund equivalents
0.75-1.50% for an income rider
5-7% declining surrender charge

Total annual drag: 2.5-4.0%. The buyer is paying 2-4% per year to wrap mutual funds inside an insurance contract — which usually doesn't beat just owning the mutual funds in a taxable or IRA account. Ramsey is right to point this out. Variable annuities almost never win the spreadsheet.

Income riders are often oversold

The "income for life" rider on an FIA or VA is calculated against a separate "benefit base" that grows at 5-7% guaranteed. Buyers think this is their account value. It's not. They confuse the benefit base (used only to calculate guaranteed income) with the actual cash value. Ramsey is right that this is a frequent mis-selling pattern.

Complexity hides the bill

The more knobs a product has — caps, spreads, participation rates, multipliers, bonus recapture — the harder it is for buyers to know what they own. Ramsey's "if you can't explain it, don't buy it" rule is sound.

What Ramsey gets WRONG

The 12% return assumption

Ramsey assumes growth-stock mutual funds return 12% annually. The S&P 500's long-term real return (after inflation) is closer to 6.5-7%. Nominal return averages 9-10%. Sequence-of-returns risk in retirement reduces sustainable withdrawal rates further.

If you use Ramsey's 12% to project retirement income at 8% withdrawal, you get crushed in the first market downturn. Multiple studies (Trinity Study, Bengen's 4% rule, more recent Morningstar work) suggest 3.5-4.5% is the safe withdrawal rate from a 60/40 portfolio — not 8%.

A MYGA paying 5.95% guaranteed for 5 years beats every realistic withdrawal-rate assumption on a 60/40 portfolio in down markets. It loses in roaring bull markets — but Ramsey's 8% withdrawal rate also breaks in those scenarios.

MYGAs are not variable annuities

A MYGA has:

0% Mortality & Expense charge
0% sub-account fees (no mutual funds inside)
0% rider fees (no rider unless you opt in)
Surrender charge that you only pay if you cash out early

The buyer's all-in fee is the spread the carrier keeps between bond yield and credited rate — usually 30-80 bps. Ramsey's 3-4% fee critique applies to VAs; it does not apply to MYGAs.

SPIAs solve a problem mutual funds can't solve

A SPIA at age 70 pays roughly 8-9% lifetime income on premium. No mutual fund portfolio at any reasonable withdrawal rate beats that for someone with average life expectancy. Ramsey's "just keep your money in growth funds and withdraw 8%" doesn't account for sequence risk or longevity risk. Annuities exist precisely to insure against those risks.

Insurance company guarantees are real

Ramsey treats "the guarantee" as if it's just marketing. State guaranty fund coverage (typically $250K-$300K per owner per carrier) is real. AM Best A+ rated carriers (Athene, Mutual of Omaha, Mass Mutual Ascend) have insolvency rates near zero historically. The guarantee on a top-tier MYGA is more reliable than a CD at most regional banks.

When Ramsey's advice DOES apply to you

You're 30-50, employed, with decades of compounding ahead. Just max your 401(k) and a Roth into index funds. Skip annuities entirely.
You're being pitched a variable annuity by a captive agent who can't show you the fee table cleanly. Walk away.
You're being pitched an FIA with a $250K premium bonus and a 14-year surrender schedule. Walk away.
You can't explain the product you're being sold to a friend in 30 seconds. Walk away.

When Ramsey's advice does NOT apply to you

You're 60+ and worried about a 30-year retirement with sequence-of-returns risk in the next 10 years. Annuities (specifically MYGAs and SPIAs) solve that. Ramsey doesn't.
You're sitting on $250K+ of cash earning 0.5% in a savings account. A 5-year MYGA at 5.95% is not a "fee-loaded annuity" — it's a CD-equivalent paying 100 bps more.
You want guaranteed lifetime income that doesn't depend on market performance. Ramsey's 8% withdrawal advice is dangerous here; a SPIA isn't.
You've already done what Ramsey says: maxed 401(k), filled Roth, paid off the house. The next dollar of qualified-money tax shelter is gone. A non-qualified annuity is the only remaining tax-deferred wrapper.

The MYGA vs Ramsey portfolio — 5-year head-to-head

Scenario	$250K in MYGA at 5.95%	$250K in S&P index, Ramsey-style
5-yr bull market (10%/yr)	$333,889	$402,628
5-yr flat market (3%/yr)	$333,889	$289,818
5-yr modest decline (-2%/yr)	$333,889	$225,802
5-yr 2008-2013 actual returns	$333,889	$329,148 (with 2009 drawdown)

The MYGA wins in 3 of 4 scenarios. It only loses in a sustained bull market — which is the only scenario Ramsey ever models. For a 65-year-old who can't recover from a 2008-style drawdown in time to use the money, the MYGA is the safer bet. Ramsey's advice is right for the saver who's still 20 years from needing the cash, wrong for the buyer who's 5 years out.

The honest summary

Dave Ramsey is right about variable annuities. He is broadly correct about avoiding products you don't understand. He is wrong to bundle MYGAs and SPIAs into the same category. He uses inflated return assumptions that have led many of his listeners into 8% withdrawal strategies that fail in real markets.

If you're 30, listen to Ramsey on annuities. If you're 60+, get a second opinion before you write off MYGAs and SPIAs based on his variable-annuity critique.

Compare Ramsey's 'all annuities are bad' vs your actual options

Independent review of your specific decision.

If you're 60+ and your 'Ramsey portfolio' is exposed to sequence-of-returns risk, a MYGA or SPIA may protect you in ways a mutual fund portfolio can't. Get an independent side-by-side comparison: the Ramsey portfolio approach vs the same dollar amount in current top MYGA/SPIA rates, modeled for your specific age and tax bracket.

Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers

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Frequently Asked Questions

Does Dave Ramsey ever recommend any annuity?

Rarely and reluctantly. He occasionally mentions SPIAs as 'sometimes acceptable' for older retirees who can't manage market risk. He has never publicly recommended a specific MYGA or FIA, and he routinely tells callers to avoid all annuities.

What's the difference between a variable annuity and a MYGA?

A variable annuity holds mutual-fund-like subaccounts inside an insurance wrapper, charges 2-4% annually, and bets on market growth. A MYGA holds carrier-managed bonds and pays a fixed contractual interest rate (5-6% currently), with effectively 0% rider fees. Ramsey's critique applies to VAs, not MYGAs.

Is Ramsey's 12% mutual fund return assumption realistic?

No. The S&P 500's actual long-term nominal return is ~9-10%, and that's before sequence-of-returns risk in retirement reduces sustainable withdrawal rates. Most academic studies put the safe withdrawal rate at 3.5-4.5%, not Ramsey's 8%.

Why does Ramsey lump all annuities together?

Broadcasting reality. A radio show can't go deep on six annuity subtypes. He defaults to 'avoid all annuities' as a safe message for the median caller. It costs sophisticated 60+ buyers the chance to evaluate MYGAs and SPIAs fairly.

Does Ramsey ever say MYGAs are okay?

Not on record. His default position is 'avoid all annuities.' That's intellectually honest for the average 30-year-old listener; it's wrong advice for a 65-year-old with $500K of bond-allocation money looking at 5-6% guaranteed MYGAs vs. 4.4% Treasuries.

What does Ramsey say about the 8% withdrawal rate?

He recommends withdrawing 8% per year from your retirement portfolio. This is roughly double the academically-supported safe withdrawal rate (~4%). Most retirement researchers consider Ramsey's 8% dangerous in any real-market scenario with sequence-of-returns risk.

Does Ramsey work for any insurance company or fund family?

He runs SmartVestor Pro — a referral network of financial advisors who pay to be in his recommended list. They typically earn AUM fees. So Ramsey's anti-annuity message benefits AUM-based advisors versus commission-based insurance producers. Disclose-and-decide.

If Ramsey's wrong about MYGAs, why is he right about variable annuities?

Because variable annuity math is brutal. 2-4% annual fee drag on a market-return product produces real underperformance versus the same mutual funds held outside the wrapper. The buyer pays for guarantees they often don't need. Ramsey's mistake is generalizing from VAs to MYGAs, not his VA critique itself.