I’m 49 and have over $4 million saved for retirement – is it a good idea to get an annuity to secure my spending?

It’s tempting to get out of stock markets right now, given that the words of President Trump could easily take a couple of thousand points off the Dow Jones Industrial Average. At the same time, the right words could tack on a similar amount of points, making it potentially as dangerous to sell as it is to buy. With Trump recently expressing his frustrations over Fed chair Jerome Powell and his lack of rate cuts, questions linger as to whether Powell’s days on the chair are numbered.

Senator Elizabeth Warren thinks that the stock market could “crash” if Powell were fired. Indeed, it’d be a shocking move to come from left field for sure. But in today’s incredibly turbulent environment, there’s a lot of risk on both sides. And for investors who can’t afford to risk riding the next steep plunge lower, it makes sense to pursue safer, steadier investments outside of the equity markets. 

In this piece, we’ll check in on the case of a 49-year-old prospective early retiree with a lofty $4 million nest egg who’s thinking about taking a considerable amount of risk off the table amid the Trump tariff turmoil. Specifically, they’re wondering if annuities deserve a spot in the portfolio as they ready their five-year plan to a “chubby” early retirement.

Depending on your lifestyle and definition of a “chubby” retirement (it’s between a moderate early retirement and a more extravagant “fat” one), this Reddit user probably has enough to shift gears into retirement immediately. In any case, they’re looking to keep building that nest egg in these critical five years.

Trump tariffs could worsen the market sell-off. Time to shift into annuities as one readies for retirement by 55?

Undoubtedly, Trump tariffs could upend the economy and take an even bigger bite out of the nest egg’s equity position. As such, if this 49-year-old is serious about retiring at 54, derisking and pursuing low-risk options just makes sense. Of course, going down the path of a risk-free asset could leave plenty of gains on the table. However, for a soon-to-be-retired person with a seven-figure retirement fund, the additional gains probably aren’t needed, given the risks, at least at this phase in the Reddit user’s life.

With the bond market experiencing relative turbulence amid Trump tariffs, the case for annuities could strengthen again, as it did when interest rates were at their peak just over a year ago. That said, annuities aren’t the most cost-effective solution in the world. They’re complex, sophisticated instruments that tend to have many strings attached. Not to mention, they boast heftier fees than most other assets (surrender penalties, commissions, admin fees) and are one of the most illiquid assets out there. And depending on the annuity, one could be left behind as inflation surges even higher from current levels. 

There’s a time and place for annuities. And for a near-retiree, I do think that an annuity can work for someone with a sizeable nest egg who’s seeking a steady source of passive income. That said, the low liquidity, inflation risk, and exorbitant fees will be a turn-off for most. In any case, I think there’s little issue in diversifying a portion of the nest egg into annuities if the Reddit user is keen on capital preservation and is insistent on tailored features that can’t be found with other products.

The bottom line

Annuities can make sense for such an individual who’s shifting to capital preservation mode. Personally, I’d diversify across defensive dividend stocks (which can pay more inflation-resilient income), REITs (Real Estate Investment Trusts), bonds, CDs (Certificates of Deposit), and perhaps even covered-call ETFs, which grant premium income through the writing of call options against owned securities. As always, someone who’s set on annuities should consult a financial advisor, given they’re not exactly the easiest asset class to understand.

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