Americans are facing some serious economic headwinds right now. Gas prices are soaring, interest rates remain high, and, as of the government's latest data, inflation is now at its highest point in almost three years. 

Naturally, those hurdles have many people worried about their money — and, more specifically, where exactly to invest it.

One option to consider, especially if retirement is looming, is an annuity, which is a unique insurance product that you purchase and receive a steady stream of income in return. Given today's economic conditions, though, there are some unique considerations to take into account before you do that. So, what do retirement experts have to say about using annuities right now?

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Why an annuity could still be worth it in today's economy

Annuities offer you guaranteed income, meaning that they're generally a good way to insulate yourself from today's volatile market, which is constantly in flux due to geopolitical conflicts, tariffs and other ongoing economic tensions.

"A big benefit is knowing each month — no matter what the stock market or other investment solutions are performing — that your income check from the annuity will arrive," says Eric Elkins, CEO of Double E Insurance and Financial Solutions. "We call it 'money at the mailbox.'"

Interest rates are also fairly high on annuities right now. For example, they may be comparable or even better than what you'd see on a certificate of deposit (CD) or high-yield savings account — but annuities come with more benefits. 

"Interest rates remain higher than they have been in decades," says Angie Welsh, founder and president of My Annuity Agents. "Higher rates mean strong lifetime income payouts and short fixed-rate periods that generally beat CD rates. Many retirees use CDs without knowing that a multi-year guaranteed annuity can offer higher interest rates and the benefit of tax deferral when tying up money for the same amount of time as a CD."

They've also delivered better earnings than bonds over the last 10 years, Elkins says, while offering a similar level of safety. 

And, one more thing to consider in this equation is the rising cost of long-term care. Long-term care costs have surged between 22% and 50% since 2019, according to an analysis by AARP, depending on the type of care provided. Since some annuities offer optional long-term care and nursing home riders, purchasing one with the right rider can be a smart tool for protecting yourself against future healthcare costs.

"Needing long-term care potentially is a major risk to someone's financial plan, and some of our clients are either uninsurable or the expense is too costly to insure with traditional long-term care solutions," Elkins says. "Certain annuities have great nursing home protection riders to help mitigate the risk if you need it down the road."

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Why an annuity may not be worth it in today's economy

While an annuity can be a smart option to consider, it may not be the best option in every situation. After all, rising inflation is a concern right now. The U.S. inflation rate is now at 3.8% — its highest rate in almost three years. If inflation continues on that upward trend, it could devalue the fixed incomes that annuities offer. 

"Fixed income streams may lose purchasing power over time — unless inflation protection is built into the product," says Candace Mills, financial advisor at Georgia's Own Investment & Retirement Services.

Inflation also poses another concern: the need for liquidity. Since prices are rising on many products, it could make sense to keep more cash on hand to cover expenses. In the event of an emergency, you may need more to weather the storm. 

"The primary risk that comes with annuities is the lack of liquidity," Welsh says. "Annuity contracts include surrender periods where your money is not accessible without very stiff penalties. In some cases, annuities are irrevocable."

The trajectory of interest rates is something else to consider in terms of using an annuity right now. With rising inflation and a new Federal Reserve chair in place, it's unclear where interest rates will head next. Should they rise, having your funds locked into an annuity could mean losing out on valuable earnings.

"One of the key risks for investors who commit to a fixed annuity is missing out on higher yields if interest rates rise after purchase," Mills says.

The bottom line

If you do opt to buy annuities, Welsh says not to put more than 50% of your total investable assets into the category. You should also be tuned into your goal for the annuity, as well as your time horizon.

"Annuities are a tool that works best when they're being used to solve a specific financial problem," Welsh says. "For example, a lifetime income annuity should not be used if someone does not need a lifetime income. Those who need access to their funds or want aggressive market growth should probably avoid annuities. People under the age of 50 should also generally avoid annuities because they have time for markets to rebound."

Before you buy an annuity, make sure you do your research. Know who you're buying it from, what it can deliver, and the fine print and risks of the contract, too. Consult an independent insurance agent or financial professional for personalized help. 

"Annuities are rather detailed contracts between the owner and the insurance carrier," says Dan Simon, retirement planning advisor at Daniel A. White & Associates. "Do your homework on the insurance carrier and the product. The guarantees are backed by the claims-paying ability of the insurance carrier, so it's important you're comfortable with the ratings of the carrier."