Annuity vs keeping it in the bank: which is smarter?

Plenty of careful people keep their retirement savings in the bank — savings accounts, CDs, money markets. It feels like the safe choice. But "safe" has two meanings, and cash only delivers one of them.

What cash protects — and what it doesn't

Cash protects your principal: the number won't drop. What it doesn't protect is your income or your purchasing power. Interest rates can fall, so the income your cash throws off can shrink. And inflation quietly erodes what that money buys — a dollar today buys noticeably less in ten years. Cash sitting still is slowly losing a race you can't see.

The "will it run out?" problem

The bigger issue: cash can run out. If you withdraw from a bank balance every month for 25–30 years, there's a real chance you outlive it — especially in a long retirement. Cash has no idea how long you'll live. A pension annuity does the opposite: it can't run out, because the insurer must keep paying for as long as you do.

The sensible split

This isn't all-or-nothing. Keep an emergency cushion and near-term spending in cash — liquidity matters. But for the portion whose job is guaranteeing your monthly bills for life, a pension annuity typically pays more than bank interest and removes the run-out risk. Cash for flexibility, guaranteed income for the floor.