Do Newly Liquid Owners Actually Need an Annuity?

The annuity illustration runs thick. The bond ladder fits on one page.

Many don't. Before recommending any annuity, an agent has to weigh your income, age, assets and liquidity needs, and a newly liquid owner's needs usually start with keeping the money reachable.

The conventional wisdom says an annuity is the safe way to turn a sale check into lifetime income. The rules governing the sale tell a more careful story. A 2021 consumer guide to annuity suitability listed 14 pieces of personal information that insurers and brokers had to consider, and liquidity needs and liquid net worth each had their own line. The same guide said issuers "cannot issue an annuity recommendation unless there's a reasonable basis to believe the annuity would effectively address the consumer's financial needs."

Read that twice. The test is your needs, not the product's features.

Getting out deserves the same attention as getting in. In 2014, the free-look window at the start of a contract ran 10 to 30 days, the one stretch when a buyer could walk away without a surrender charge. After that, even a 1035 transfer into a different annuity stayed subject to any surrender charges still on the clock.

Regulators have tightened the selling side, too. One state now requires resident agents to complete eight hours of annuity-specific continuing education every term after certification. Good for them. Training the seller is not the same as having a plan built around your goals, your timeline and the real life you sold the company to go live. So start with what the money has to do, and by when.

What are you actually trying to solve once the sale money lands?

Owners who sold a business usually need three things: decades of steady spending money, protection from losses and inflation, and room to change course. An annuity is one tool, not the goal.

Before any product enters the room, I'd have you settle these in order:

1. Write down what you need to spend each year, and for how many years.
2. Decide how much of the proceeds you might want back in the next few years, for a new venture, a tax bill, or family.
3. Only then ask which tool fits those answers: bonds, cash, an annuity, or some mix.

Our practice focuses on business owners and exit planning, so the goals come first here and the products come a distant second. That's not modesty. It's sequencing.

The goals are rarely exotic. In 2021, the adult child of a Polish couple who had sold their businesses asked strangers online what to do with the money. Combined with savings, the proceeds were expected to fund comfortable living for about 30 years. The first instinct was to put everything in bonds, not to grow it but to avoid losing it to inflation, because long-term stock investing looked "too risky once you are retired," as the post put it. None of that requires a particular product. It requires a plan with numbers in it.

One reply offered the annuity answer almost exactly the way it usually arrives: a "pre determined monthly or yearly guaranteed income for the rest of your life," at the price of "somewhat lower returns than the market as a whole." Notice what the pitch speaks to. Running out, markets falling, prices rising. It answers all three fears at once, which is exactly why it sells.

The industry is not shy about this. In a January 2026 PLANADVISER roundup, Athene co-president Mike Downing said "There's an annuity for everyone" and wrote that annuities can offer nearly 2% more yield annually than CDs or money market accounts. In the same piece, Brant Wong of Principal Asset Management said the products are not for everyone. I'm with Wong on this one, partly because "everyone" is a very large word to put on a contract you can't easily leave.

The common assumption is that safety means a contract with the word guaranteed printed on it. For a newly liquid owner, safety more often means being able to reach your own money when life changes its mind. Regulators seem to agree on the order of operations. Annuity.org's summary of the suitability rules says agents must weigh "the consumer's income, age, assets and liquidity needs" before recommending one. Liquidity is on the list by name. That is not an accident.

Combining 4 sources points to the same gap: everyone talks about income, and far fewer talk about access. In practice, the owner who locks up proceeds too early trades one fear for a quieter one. (And if the wire hasn't hit yet, the bigger lever may still be the price itself, since buyers pay less when a company can't run without you.)

Which brings up the question the glossy illustration tends to bury: what happens if you need that money back in year three?

What happens if you need your money back in the first few years?

You pay to leave. Most contracts charge a declining surrender fee for years, and the IRS can add its own penalty on top before age 59½.

A surrender charge is the insurer's fee for pulling money out during the contract's early years. Annuity.org's 2014 guide said the surrender period "usually lasts six to eight years after purchase" and "can be as long as 10 years and, many times, as short as three years." For an owner who just spent years inside an illiquid business, that is a long time to be told to sit still again.

The charge usually steps down each year. One insurer's own 2025 explainer showed a hypothetical schedule starting at 6% in Year 1 and falling a point a year until there was no charge in Year 7. That same 2025 explainer said most contracts let you take out a set portion each year without the charge, "often 10 percent." It was also candid about why the charge exists: "It costs a carrier a significant amount of money to create and administer an annuity contract, given the various sales, operational, and legal costs involved." Translation: part of what you pay to leave early is the cost of having been sold the thing.

Then the tax layers arrive. The same 2014 guide walked through a $50,000 single-premium qualified annuity bought 18 months earlier, with $20,000 withdrawn for medical bills:

In that 2014 example, the total came to $2,900 in charges and penalties before a dollar of income tax, on money needed for medical bills, not a sports car. Certain fixed annuities can also apply a market value adjustment, and the insurer's explainer says that when rates are higher than at issue, the withdrawal is reduced. Tax rules have a real talent for ambushing owners (the pro-rata rule that ruins a backdoor Roth is another fine example), so run your own numbers with a CPA before trusting anyone's example, including mine.

None of this is hidden, exactly. Under the suitability rules, agents must disclose surrender periods and charges, tax penalties, mortality and expense fees, and rider costs before or at the time of sale. Disclosed is not the same as understood. Nobody reads the fine print carefully during closing week.

Once a contract is annuitized (turned into a stream of payments), the exit narrows further. Late in 2025, an heir to three annuitized contracts, a fixed, a variable and an indexed annuity, described having exactly two choices: take the monthly payments, or sell them to a third party. The issuer offered no lump sum at all. The best quote was 70% of current value, and an industry professional in the discussion put the math bluntly: "a 30% loss requires a 43% gain to offset."

I don't think surrender charges are a scandal. They're a price, and prices are fine when you see them coming. My concern is timing. A newly liquid owner is the person most likely to need capital for something unexpected, and the least likely to know yet what that something will be. Your money is still yours. Reaching it just costs extra, and the bill runs highest in exactly the years you know the least.

How do you build post-sale income with a bond ladder instead of an annuity?

A fee-only fiduciary plan builds the income first: bonds that mature in the years you need cash, low costs, and the rest invested where you can reach it.

A bond ladder is a set of high-quality bonds, each maturing in a different year. When a rung matures, it pays back its face value (barring a default by the issuer), and that cash covers the year's spending. Nothing about it is clever. That's the appeal.

Here is the order I'd work in:

1. Add up your base spending for each year, the bills that arrive whether markets cooperate or not, and subtract any other steady income.
2. Buy bonds that mature in each of those years, sized to cover that year's gap.
3. Keep the rest of the proceeds invested for growth, where you can reach it, and extend the ladder as rungs come due.

Compare that with the contract from the last section. There is no surrender schedule, because there is no insurer holding the keys. You own the bonds. If plans change, you can sell a rung before it matures. The price may be higher or lower than what you paid, depending on where rates have moved since, but you are making a market trade, not asking anyone's permission to touch your own money.

Costs stay visible, too. You pay what it costs to buy the bonds and whatever your advisor charges for the advice, and both show up where you can see them. There are no rider fees, no mortality and expense charges, and no sales cost tucked into an illustration. Low cost is not a feature you take on faith. It's arithmetic you can check.

The ladder has real limits, and I'd rather name them than have you discover them. It covers the years you build it for, not however long you happen to live. It won't stop you from panic-selling the growth money in a bad year; only temperament and a written plan do that. And it takes some upkeep, which is either a feature or a chore depending on your personality.

So when does a partial annuity earn a place? When the ladder is built and you still lie awake about living to a very old age. Or when a spouse would sleep better with a monthly check that doesn't depend on anyone rebalancing anything. In those cases, I'd consider covering part of base spending with a simple income annuity, bought only with money you are confident you won't need back. Notice the order. The plan decides, and the product fills a gap.

We build this inside a full plan because the ladder touches almost everything else. Our work integrates financial planning, wealth management, and business advisory, and it spans eight planning areas: retirement, investment, cash flow, risk, estate, tax, education, and business advisory. A ladder that ignores the tax bill from the sale, or the cash a new venture might need, is just a stack of bonds with good intentions.

It also has to fit the accounts you already have. Modern Wealth has published work on value maturity, QSBS, and the solo 401(k) partly for this reason, and if you are still running a smaller company alongside retirement, it's worth seeing how a SEP-IRA and a solo 401(k) compare for one owner before you decide which dollars fund which rung.

What will matter most for owners weighing an annuity over the next 12 to 24 months?

Access, more than yield. Pitches will stay frequent and more complex, so map your income years before the first meeting with anyone.

I'm not predicting markets here; nobody should trust me with that. I'm predicting the sales channel, which is easier, because it publishes its plans.

Where could I be wrong? The strongest case against my view comes from inside the industry. "As a rule of thumb, you need to save about 30% less when you allocate to lifetime income," said Prudential's David Blanchett, who also called a lifetime annuity the best way to manage longer lifespans. For an owner whose real fear is outliving the money, that deserves a fair hearing, not an eye roll.

Rates are the other wild card. Annuity researcher Keith Golembiewski expected 2026 fixed-rate deferred sales to fall below 2025 levels "as short-duration appeal fades in conjunction with lower interest rates." Lower rates would squeeze a bond ladder's income too. Falling rates are an equal-opportunity disappointment.

And inflation never left the conversation. Back in 2021, commenters advising a Polish couple who had sold their businesses pointed them to government inflation-indexed bonds, then paying 1% above inflation. That is the raw material for an inflation-protected ladder, no surrender schedule required. So the thing I'd bet on for the next two years isn't a rate or a product. It's the doorbell, and I'd want the ladder sketched before the first meeting, not after the third.

Where does that leave the annuity pitch waiting in your inbox?

On hold, for many owners. Build income from bonds you can see first, then consider an annuity only for a longevity gap the ladder leaves open.

The pitches will keep coming. LIMRA's preliminary survey put 2025 U.S. annuity sales at $461.3 billion, up 6%, and the research group expected 2026 to stay above $450 billion. That is a busy sales channel, and a fresh sale check is exactly what it looks for. Indexed products made up 45% of 2025 sales, against 24% a decade earlier, so the contract slid across your desk may well come with more moving parts to read.

Contrary to the pitch, safety after a sale often looks like access. A ladder of high-quality bonds that mature in the years you need cash does the income job with costs you can see and no surrender period deciding when you may change your mind. I'd keep an annuity for the one job a ladder can't do, which is paying you if you outlive the plan. You already did one long lockup. Nobody needs the sequel.

If an agent still thinks a contract fits, let them make the case. Ask to see the surrender charges, tax penalties, rider costs and mortality and expense fees before you sign, since suitability rules expect those disclosed at or before the sale. Answer the suitability questions honestly, too, because declining them can waive the state-law protections written for you. Then set the illustration next to a ladder and price the cost of getting out, line by line, before the free-look clock ever starts.

← All articles