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Annuities: When is One Right for You?

What is an annuity?

Annuity is a general term for a group of insurance products that pay income over time after you contribute a lump sum or periodic payments to an insurance company. Annuities tend to be secure and reliable investments because they do not fluctuate greatly with stock market downturns.

When combined with other retirement accounts, annuities can provide you with guaranteed income to cover your needs in retirement. The investment (in most annuities) grows tax-deferred, which means that you do not pay taxes until you begin to receive the payouts from the annuity.

Annuity payments also allow the money in your other retirement accounts to continue to generate earnings (likely at a higher rate of return), ensuring that you will not run the risk of depleting the funds that you will need to depend on throughout retirement.

What are the types of annuities?

There are a variety of annuities available depending on your goals, age and needs. Some of the more popular types on the market are:

  • Fixed Indexed
  • Traditional Fixed
  • Premium Bonus
  • Immediate

You can also explore these options in more detail here.

Is an annuity right for me?

Most financial experts agree that you shouldn’t consider investing in an annuity until you have maximized your contributions to your other tax-deferred retirement accounts, such as a 401k or an IRA. Those accounts typically carry lower fees and offer the same benefit of tax deferment.

One of the greatest considerations for deciding whether to invest in an annuity is age:

  • Gen Z Investors in their 30s and 40s may want to opt for investments with greater risk and higher return rather than investing in an annuity at this time. If you invest in an annuity at a younger age, this means your money will be tied up for many years since the minimum age for withdrawal without penalty is 59 ½.
  • Gen X Investors may want to rollover funds from one or more tax deferred accounts to an annuity to generate guaranteed income and accumulate value for an upcoming retirement.
  • Baby Boomers, or those in their 70s are at a prime age to invest in an annuity since they are at or near the minimum age to withdraw funds without penalty and they typically are the age group most concerned about running out of retirement savings.

Pros and cons of annuities

According to The Center for Secure Retirement, annuities are beneficial because they can provide income and they can often be customized to meet your needs.

On the other hand, you need to consider that there are potential fees associated with annuities, and they also tend to offer lower, but guaranteed, rates of return.1

Do your homework

Perhaps you’ve decided that you would like to consider investing in an annuity! To begin, you should ask your advisor these basic questions:

  1. What are the fees, expenses and penalties associated with the annuity?
  2. How does the type of annuity that is being recommended work? Is it in line with your goals for income and tax purposes?
  3. Are there other investment vehicles that would better suit your needs?

Before you invest, you should ask additional questions to be sure this option is right for you.

Annuities can help you to diversify your portfolio, provide guaranteed income and a safety net when you need it most. If you are interested in annuities and which one may be best for you,  contact us today to learn more about this valuable planning vehicle.


1 Center for a Secure Retirement,, July 2021.