Before You Lock Into an Annuity, Consider the Flexibility You Might Be Giving Up Forever

Missy E
November 14, 2025

Key Takeaways

Annuities can provide guaranteed lifetime income but often come at the cost of liquidity, flexibility, and future financial control.
For government employees with access to pensions and the Thrift Savings Plan (TSP), locking into an annuity without evaluating long-term needs may create irreversible limitations.

Understanding the Nature of Annuities in Retirement

Annuities can sound appealing when you’re approaching retirement: guaranteed income

, stability, and insulation from market volatility. But before you sign a contract that might last the rest of your life, you need to understand what you may be giving up in exchange for that predictability.

For government employees, especially those under the Federal Employees Retirement System (FERS), you already have access to several income sources, including a pension, Social Security, and TSP savings. Adding an annuity to that mix should be a carefully considered decision, not a default move.

What You Gain—and What You Lose—When You Choose an Annuity

An annuity essentially converts a lump sum of money into a stream of income payments. These payments may last for a set number of years or for the rest of your life, depending on the type of annuity you select. While the upside is clear—reliable income—the downside often gets glossed over.

The Main Benefits:

Lifetime income protection, which can be particularly reassuring if you fear outliving your savings.
Optional features like cost-of-living adjustments or spousal continuance (if chosen at the outset).
Freedom from market risks, since returns are typically fixed or structured.

The Core Limitations:

Irrevocability: Once you annuitize a portion of your savings, you generally can’t change your mind.
Loss of liquidity: You can’t withdraw large sums in case of emergencies.
Limited growth potential: Most annuities offer conservative returns.

Comparing Annuities to Other Federal Retirement Income Sources

By the time you retire from government service, your income stream may already include:

A monthly FERS annuity calculated using your high-3 average salary and years of service.
Social Security benefits beginning as early as age 62.
Optional withdrawals from your Thrift Savings Plan, which allow flexible distribution options.

Unlike a personal annuity contract, these federal sources offer built-in inflation adjustments and survivor benefits—features you’d often have to pay extra for with a private annuity. TSP also gives you significant control over timing, amount, and method of withdrawals. Once you trade that flexibility for a fixed annuity, you’re shifting from control to commitment.

Questions You Need to Answer Before Buying an Annuity

How much flexibility do I want in retirement? If you anticipate needing access to large sums—whether for health emergencies, family assistance, or lifestyle choices—an annuity may not be ideal.
Do I need more guaranteed income—or just want it? If your FERS annuity and Social Security cover your basic living expenses, locking more of your TSP into a fixed-income product might unnecessarily limit your freedom.
How comfortable am I with losing control of principal? Most annuities do not allow access to the original premium once the contract is annuitized. This can be psychologically and financially restrictive.
Is there a spouse or dependent to consider? Survivor options must be chosen at the outset of an annuity contract. If you forget or decide later to include someone, it’s usually too late.
What are my other alternatives? Federal employees have access to structured TSP withdrawals, installment payments, and partial rollovers. All of these offer greater adaptability without immediately locking in your money.

What Flexibility Really Means in Retirement

Retirement doesn’t mean your life stops evolving. New goals emerge. Unexpected expenses arise. And financial strategies need adjusting. That’s where flexibility matters most.

Key Aspects of Flexibility You Might Lose with an Annuity:

Access to cash: You can’t tap into an annuity for large one-time purchases without harsh penalties or loss of income stream.
Investment control: With a TSP or IRA, you can modify allocations based on market trends or personal comfort. An annuity’s terms are set in stone.
Estate planning options: Annuity contracts often limit what can be passed on to heirs. By contrast, IRAs and TSP balances can be bequeathed in full.

Flexibility also extends to taxation. With TSP or IRA withdrawals, you can control your taxable income year by year. With an annuity, payments are fixed—and so is the tax implication.

Timelines and Triggers That Matter in 2025

Let’s talk specific timeframes. In 2025:

You can begin taking penalty-free withdrawals from retirement accounts at age 59½.
Required Minimum Distributions (RMDs) begin at age 73 for most retirees.
You can convert part of your TSP into an annuity at any time post-retirement, but once you do, it’s irreversible.
Survivor annuity elections through FERS must be made at retirement, not later.

Locking into a private annuity before these milestones may limit your ability to coordinate income, taxes, and legacy planning later on.

Alternatives to Consider Before Committing

If you’re drawn to the idea of guaranteed income but hesitant to give up control, there are other retirement strategies to explore.

Phased Withdrawals from TSP

You can choose monthly, quarterly, or annual withdrawals and adjust them as your needs change.

Laddering Strategies

Create multiple income sources with staggered start dates—such as combining part-time work, phased TSP withdrawals, and Social Security claiming strategies.

Roth Conversions

You might convert part of your TSP or IRA to Roth accounts to provide future tax-free income without the rigidity of an annuity.

Partial Annuitization

Consider annuitizing only a portion of your retirement savings. This approach preserves some flexibility while still securing predictable income.

Evaluating Risk vs. Certainty in 2025

In a world where market volatility remains a concern, it’s understandable to seek security. But retirement planning isn’t just about certainty—it’s also about adaptability.

You already carry less risk than most private sector retirees because of your FERS annuity and access to Social Security. If those base layers cover your essentials, it may be smarter to leave the rest of your retirement assets in a more flexible structure that can respond to change.

While an annuity may reduce stress about outliving your money, it may also leave you with limited options if your needs shift.

Lifetime Commitments Require Lifetime Foresight

Before purchasing an annuity in 2025, ask yourself: Do I understand the implications of this decision for the next 20–30 years? Because that’s how long you might be living with its consequences.

Many annuity contracts are structured to pay out over your lifetime, and while that can offer peace of mind, it also binds your hands financially. You may be unable to help a family member, take on a major project, or adapt to economic conditions without dipping into other sources.

Flexibility can be a critical asset in retirement, often just as important as guaranteed income.

Think Long-Term, Not Just Lifetime

Making the decision to annuitize should never be done hastily. While annuities have a place in some retirement plans, they are not universally appropriate. Their value depends entirely on your overall financial landscape and goals.

If you’re even slightly unsure about whether an annuity is right for you, don’t rush. Review your retirement income sources. Compare distribution strategies. Forecast your spending needs and estate planning wishes. And above all, speak with a qualified professional who understands government retirement benefits.

You’ve worked hard for your benefits. Be just as deliberate when deciding how to structure your retirement income.

Get in touch with a licensed agent listed on the website for professional advice tailored to your needs.