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.
| Benchmark | Rate | Source, as of |
|---|---|---|
| Top A-rated 5-year MYGA | 5.50-6.05% | public carrier rate sheets, 10/14/2026 |
| Top 5-year bank CD (APY) | 4.35-4.50% | DepositAccounts, 9/25/2026 |
| 5-year Treasury (par yield) | 4.98% | U.S. Treasury, 9/25/2026 |
The 5.95% MYGA used in the examples below sits inside the current top A-rated 5-year range. MYGA rates change often; confirm the rate for your state on the day you apply.
CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 5.00%, the top nationally available 5-year CD (Bankrate, October 14, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $121,081 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $5,055 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
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.
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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 life-only SPIA bought around age 70 pays a lifetime income rate far above the 3.5-4.5% safe-withdrawal range (quote your exact age and state; payouts change with rates). 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 roughly 130 to 165 bps more than the top 5-year bank CDs (4.35-4.50% APY in September 2026).
- 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) | $333,768 | $402,628 |
| 5-yr flat market (3%/yr) | $333,768 | $289,818 |
| 5-yr modest decline (-2%/yr) | $333,768 | $225,802 |
| 5-yr 2008-2013 actual returns | $333,768 | $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.
Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
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Frequently Asked Questions
Related reading
- Suze Orman on Annuities
- Warren Buffett on Annuities
- Highest Paying MYGA Rate This Week
- MYGA Laddering Strategy
- Annuity Commission Disclosure
- Is Annuity Good for 70-Year-Old
About Hans Goldstein: Independent retirement income specialist. CA Life License #4273294. NPN #20602398. Phone: 213-414-2808. Email: hans@hansgoldstein.com.
Disclosure
This article reflects publicly available product materials, carrier rate sheets, and approximate rates and tax law as of the date stated above. Annuity rates, caps, participation rates, payout factors, crediting methods, commission structures, and pension regulations change frequently. Always confirm current values against the most recent carrier disclosure document, plan summary, and actual contract before making any decision. This is general education, not a personal recommendation or an offer of any product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated carriers across the annuity and long-term care insurance market; producer's specific appointment status with any carrier discussed may vary, and discussion of any carrier is not an endorsement or representation of carrier appointment. No compensation has been received from any carrier in connection with the publication of this article. Always read the actual contract, summary plan description, or pension election form, and consult a licensed advisor and tax professional before purchasing any annuity, accepting a pension election, or executing a rollover. Annuities are long-term contracts with surrender charges and are not suitable for funds you may need before the end of the surrender period. Tax discussion reflects federal tax law as of 2026 and is subject to change. State tax treatment varies. PBGC coverage limits and pension plan termination rules are set by federal statute and may change.