Should You Buy an Annuity? How the Smiths Stress-Tested the Idea

The fear that kept them up at night

The Smiths — Robert and Gail, both recently retired in Fredericton, New Brunswick — are careful people. They saved diligently, invested sensibly, and arrived at retirement with a solid nest egg. And yet they were anxious in a way their numbers did not seem to justify. Their worry was not whether they had enough today. It was what would happen if a serious market downturn arrived and stayed. "We have watched the markets fall apart before," Gail said. "I do not want our grocery money depending on what the stock market does in a bad year."

That fear is deeply human, and it points at a real question more retirees should consider: is there a way to make the income you truly depend on immune to the market's moods? For the Smiths, the idea they kept circling back to was an annuity.

What an annuity actually is

Here is the public part, in plain terms. A life annuity is a contract you buy from an insurance company. You hand over a lump sum, and in return the company promises to pay you a set income for the rest of your life — no matter how long you live and no matter what markets do. It is, in essence, a way to convert savings into a personal pension.

The appeal is obvious for someone like the Smiths. An annuity provides guaranteed, predictable income that does not rise and fall with your investments. Once it is in place, that cheque arrives every month whether the market is soaring or in free fall. For income you cannot afford to gamble with, that certainty has enormous psychological value.

"The word that kept coming up for us was floor," Robert said. "We wanted a floor under the essentials that nothing could knock out."

The honest trade-off

But an annuity is not free of cost, and a fair look requires putting the downsides squarely on the table. When you buy a life annuity, you typically give up access to that lump sum. The flexibility is gone — you cannot dip into it for a big unexpected expense, and you generally cannot change your mind. And in most cases, when you pass away, that capital does not pass to your estate the way an invested portfolio would. You have traded a pile of money for a stream of income, and the pile is no longer yours to leave behind.

So the real decision is a trade-off between two genuine goods. On one side: the lifetime certainty and peace of mind of guaranteed income. On the other: the flexibility to access your money and the ability to leave whatever is left to your children. Neither is automatically right. It depends on what you value and what you fear.

Consideration	Self-managed drawdown	Life annuity
Income certainty	Depends on markets and withdrawals	Guaranteed for life
Flexibility / access to capital	Full — you can adjust or withdraw	Largely given up
Estate / inheritance value	Whatever remains passes on	Capital generally does not pass on
Exposure to a market crash	Yes — especially early on	None for the annuity income

The insight that resolved it: you do not have to choose all or nothing

The breakthrough for the Smiths was realizing the decision is not binary. They did not have to annuitize everything or nothing. They could buy a partial annuity — converting just enough of their savings into guaranteed income to cover their essential expenses, while leaving the rest invested and flexible for everything else.

This is the strategy that fits cautious-but-not-rigid people so well. You build a guaranteed floor under the non-negotiables — housing, food, utilities, insurance — so that no matter what markets do, the lights stay on and the fridge stays full. Then you manage the remainder yourself for the discretionary parts of life: travel, gifts, the occasional splurge, and the legacy you hope to leave. The floor is locked in; the upside and flexibility remain.

How they stress-tested it

The Smiths used TrackMoola's retirement income projector to compare two pictures side by side: managing their entire nest egg themselves through retirement, versus carving off a portion to create an annuity floor and managing the rest. They were not looking for the option that produced the biggest theoretical number. They were looking for the one that let them sleep.

TrackMoola did not push them toward a product or tell them precisely how much to annuitize; it let them see how each arrangement supported their essential and discretionary spending, and how each held up against the kind of rough markets they were so afraid of. Seeing the partial-annuity picture — essentials covered no matter what, with a flexible portfolio still working alongside — was what finally put their fear to rest.

What they were testing	Manage it all themselves	Partial annuity for essentials
Essential expenses in a bad market	Could feel pressure	Fully covered, guaranteed
Flexibility for travel and gifts	Full	Retained on the invested portion
How it felt day to day	Persistent worry	Peace of mind

For the Smiths, the partial annuity was the answer. By guaranteeing the income that covered their essentials, they removed the single fear that had been shadowing their retirement, while keeping enough invested to stay flexible and to leave something behind. The "result" here was not a bigger balance — it was the quiet they had been missing. These figures and outcomes are illustrative; they describe the Smiths' situation and goals, not yours.

Why peace of mind is a legitimate return

It is tempting, in financial planning, to treat the option with the highest projected dollar value as the obvious winner. But the Smiths' story is a reminder that retirement is not only a math problem. A plan that technically leaves you slightly wealthier on paper but has you anxiously watching the markets every morning is not clearly better than one that leaves you a little less wealthy but completely at ease. Peace of mind has real value, and for many retirees it is precisely what they are trying to buy.

That said, the opposite caution is equally true. Annuitizing too much — locking away money you might genuinely need access to, or sacrificing more estate value than you intended — can be its own kind of mistake. The art is in the proportion: enough guaranteed income to feel secure, not so much that you lose the flexibility that also matters. That balance is personal, which is exactly why the Smiths had to see their own numbers rather than follow a rule.

What their story illustrates

• A life annuity converts a lump sum into guaranteed income for life, immune to market swings.
• The trade-off is real: you typically give up access to the capital and the ability to leave it to your estate.
• It is not all-or-nothing — a partial annuity can cover essential expenses while the rest stays invested and flexible.
• Peace of mind is a legitimate goal, but over-annuitizing has its own costs; the right proportion is personal.

Try it yourself

If the thought of a market crash dictating your retirement keeps you up at night, you owe it to yourself to see what a guaranteed floor could do for your peace of mind. Compare managing your savings yourself against carving off a portion for an annuity floor in TrackMoola's retirement income projector. Like the Smiths, you may find that covering your essentials with guaranteed income, while keeping the rest flexible, is the balance that finally lets you relax.