Annuities do carry some risks, including:
- Inflation Risk: Fixed payments may lose purchasing power over time if they do not adjust for inflation.
- Rate Risk: The annuity will be set in stone once you purchase this and as such you would not benefit from possible future increases in annuity rates. This can also work to your advantage if the annuity rate is reduces after you have purchased your income.
- Shortfall Risk: If your income needs fluctuate or increase over time, over and above any indexation you have added you may find that your income needs are not met unless you have an alternative way to provide this.