Annuities for Retirement Income & Financial Security
Annuities can help turn a portion of your retirement savings into a strategy designed for income, protection, and long-term financial confidence.
From fixed and fixed indexed annuities to options designed to provide guaranteed lifetime income, we help you understand how annuities work, what they can and cannot do, and whether an annuity may fit into your overall retirement strategy.
What Is an Annuity?
An annuity is a contract with an insurance company designed to help accumulate money for retirement and/or provide a stream of income. Depending on the type of annuity, it may offer guarantees, interest-crediting opportunities, tax-deferred growth, and options for creating income that can last for a specific period or for life.
Annuities aren’t all the same, and they aren’t the right solution for everyone. Understanding how the different types work, their guarantees, potential benefits, limitations, fees, surrender periods, and access to your money is important before deciding whether an annuity belongs in your retirement strategy.
Understanding the Different Types of Annuities
The word “annuity” describes several different types of insurance contracts, and the differences matter. How your money grows, how much market risk you assume, when you can access your money, and how income may be generated can vary significantly from one type of annuity to another.
Fixed Annuities
A fixed annuity provides a guaranteed interest rate for a specified period, subject to the terms of the contract and the claims-paying ability of the issuing insurance company. This can provide predictable growth without directly exposing the contract value to stock market losses.
Fixed Indexed Annuities
A fixed indexed annuity provides the opportunity to earn interest based in part on the performance of a market index, such as the S&P 500, without directly investing your money in the stock market. Interest credited to the contract is determined by the annuity’s specific index-crediting methods, which may include caps, participation rates, spreads, or other limitations.
Fixed indexed annuities generally provide protection from direct market losses while offering the potential for greater interest crediting than a traditional fixed annuity. Guarantees are backed by the claims-paying ability of the issuing insurance company, and credited interest will vary based on the terms of the contract.
Multi-Year Guaranteed Annuities (MYGAs)
A Multi-Year Guaranteed Annuity, or MYGA, is a type of fixed annuity that guarantees a stated interest rate for a specific number of years. This can make a MYGA appealing to someone who wants predictable growth and protection from stock market volatility.
MYGAs are often compared with CDs because both can provide a predictable rate for a set period, but they work differently. Annuities are insurance contracts, may offer tax-deferred growth, and have their own surrender periods, withdrawal provisions, and tax considerations that should be understood before purchasing.
Creating Income You Can’t Outlive
One of the biggest concerns people face in retirement is whether their money will last as long as they do. Certain annuities can be structured to provide guaranteed income for life, helping create a predictable source of retirement income regardless of how long you live.
Depending on the annuity and the income option selected, that income may begin immediately or at a future date. Some contracts also offer optional income riders designed to provide a defined method for calculating future lifetime withdrawals.
The goal isn’t necessarily to put all of your retirement savings into an annuity. It’s to determine whether using a portion of your assets to create predictable lifetime income can strengthen your overall retirement strategy.
Protecting a Portion of Your Retirement Savings
Market volatility can become increasingly important as you approach or enter retirement because there may be less time to recover from a significant downturn. Fixed and fixed indexed annuities can provide a way to protect a portion of your retirement savings from direct stock market losses while still allowing the money to earn interest according to the terms of the contract.
That protection comes with trade-offs. Annuities are designed as long-term financial products and may include surrender periods, limits on withdrawals, and other contract provisions. Understanding both the protection and the limitations is an important part of determining whether an annuity fits your retirement strategy.
Tax-Deferred Growth
Money inside an annuity generally grows tax-deferred, which means you don’t pay income taxes on interest or earnings as they are credited to the contract. Taxes are generally due when taxable amounts are withdrawn or received as income.
Tax deferral can be useful in retirement planning, but an annuity doesn’t make earnings tax-free. Withdrawals may be subject to ordinary income taxes, and withdrawals taken before age 59½ may also be subject to an additional federal tax penalty in certain circumstances.
Annuities also don’t provide additional tax deferral when purchased inside an already tax-deferred retirement account such as an IRA. In those situations, the reasons for considering an annuity would generally involve its other features, such as guarantees, principal protection, or lifetime income.
Understanding Liquidity & Surrender Periods
Annuities are generally designed for long-term retirement planning rather than short-term savings. Many contracts include a surrender period during which withdrawals above the amount permitted by the contract may result in a surrender charge.
Many annuities allow a portion of the contract value to be withdrawn each year without a surrender charge, but the amount and rules vary by contract. Some may also provide additional access to funds under certain circumstances, such as qualifying health or care-related events.
Before purchasing an annuity, it’s important to understand how long the surrender period lasts, how much money can be accessed without a surrender charge, and whether you have sufficient liquid savings outside the annuity for emergencies and other needs.
Annuities & Legacy Planning
Annuities are primarily designed for retirement accumulation and income, but many contracts also include provisions that can provide remaining contract value or a death benefit to named beneficiaries when the owner or annuitant dies.
How much passes to beneficiaries depends on the type of annuity, contract value, withdrawals already taken, income elections, and the specific provisions of the contract. Some annuities may also offer optional features designed to enhance legacy benefits.
If leaving money to family, a charity, or another organization is an important goal, we can look at how an annuity may fit alongside life insurance and other assets as part of a broader legacy strategy.
How Much of Your Retirement Savings Should Go Into an Annuity?
There isn’t one percentage or dollar amount that’s right for everyone. The amount that may be appropriate depends on your retirement income needs, other sources of guaranteed income, savings and investments, liquidity needs, time horizon, risk tolerance, and the goals you’re trying to accomplish.
For some people, an annuity may be used to help cover essential monthly expenses that aren’t already covered by Social Security, pensions, or other dependable income. Others may use an annuity primarily for principal protection, tax-deferred accumulation, or future income.
An annuity should be considered as one part of an overall retirement strategy—not simply based on how much money is available to invest.
Choosing the Right Annuity
Choosing an annuity isn’t simply about finding the highest interest rate or the largest illustrated income number. Different contracts are designed for different purposes, and the features that matter most depend on what you’re trying to accomplish.
We look at factors such as your retirement income goals, time horizon, need for liquidity, existing retirement income, risk tolerance, legacy goals, surrender period, guarantees, and how interest or income is calculated before comparing available options.
The right question isn’t “Which annuity is best?” It’s “Which annuity, if any, best fits the job you need it to do?”
Annuity Guidance Without the Confusion
Annuity contracts can be complicated. Interest-crediting methods, income riders, surrender schedules, withdrawal provisions, fees, and guarantees can make two products that sound similar work very differently.
We help you understand what you’re looking at, compare available options, and focus on the features that matter for your goals. That includes explaining both the potential benefits and the limitations so you can make an informed decision about whether an annuity belongs in your retirement strategy.
Our job is to help you understand the options—not make the decision more complicated.
Annuities FAQ
Annuities can be useful retirement planning tools, but they can also raise a lot of questions about guarantees, income, access to your money, taxes, and how different types of annuities work. Here are answers to some of the questions we hear most often from people considering an annuity.
What is an annuity?
An annuity is a contract issued by an insurance company that can be used to accumulate money for retirement and/or provide income. Depending on the type of annuity, it may offer guaranteed interest, index-linked interest-crediting opportunities, principal protection, tax-deferred growth, or options for creating income that can last for life.
Are annuities safe?
The answer depends on the type of annuity and what you mean by “safe.” Fixed and fixed indexed annuities are designed to protect contract value from direct stock market losses, but annuities are insurance contracts rather than bank deposits. Their guarantees depend on the financial strength and claims-paying ability of the issuing insurance company.
Can I lose money in a fixed indexed annuity?
A fixed indexed annuity is designed so that its contract value is not directly reduced because the market index it follows declines. When the index performs negatively, the interest credited for that period may be zero rather than negative. However, withdrawals, surrender charges, fees associated with optional features, and other contract provisions can reduce the value of the annuity.
The specific protections and interest-crediting rules vary by contract, so it’s important to understand how a particular annuity works before purchasing it.
How does a fixed indexed annuity earn interest?
A fixed indexed annuity can earn interest based in part on the performance of a market index, but your money is not invested directly in the index or the stock market. The insurance company uses a crediting method to determine how much interest is added to the contract.
Depending on the annuity, that calculation may use a participation rate, cap, spread, or other crediting method. Because of these limitations, the interest credited to the annuity will not necessarily equal the full return of the index.
What is the difference between a fixed annuity and a fixed indexed annuity?
A fixed annuity credits interest at a stated rate according to the terms of the contract, providing predictable growth for a specified period. A fixed indexed annuity calculates potential interest using the performance of one or more market indexes, subject to the contract’s crediting methods and limitations.
Both can provide protection from direct stock market losses, but they offer different approaches to how interest is earned. Which approach may be appropriate depends on your goals, time horizon, need for guarantees, and other financial considerations.
Can an annuity provide income for the rest of my life?
Yes. Certain annuities can be structured to provide guaranteed income for life. Depending on the contract, lifetime income may be created through annuitization or through an income benefit or rider that provides a defined method for calculating lifetime withdrawals.
The amount of income available can depend on factors such as the amount deposited, your age when income begins, whether income covers one person or two, the length of time assets remain in the contract, and the specific terms of the annuity.
Can I take money out of an annuity if I need it?
Usually, yes, but the rules depend on the contract. Many annuities allow a certain amount to be withdrawn each year without a surrender charge, while withdrawals above that amount during the surrender period may result in charges.
Because annuities are designed for long-term retirement planning, it’s important to understand the withdrawal provisions and maintain enough accessible savings outside the annuity for emergencies and other short-term needs.
How are annuity withdrawals taxed?
The tax treatment of an annuity depends in part on how the annuity was funded. With a nonqualified annuity purchased with after-tax money, earnings are generally tax-deferred until withdrawn, and taxable earnings are generally subject to ordinary income tax.
Annuities held inside qualified retirement accounts such as IRAs follow the tax rules applicable to those accounts. Tax treatment can vary based on individual circumstances, so questions about a specific tax situation should be discussed with a qualified tax professional.
How do I know if an annuity is right for me?
An annuity may be worth considering if you’re looking for features such as principal protection, tax-deferred accumulation, predictable interest, or a way to create guaranteed retirement income. Whether it makes sense depends on your goals, other retirement assets and income sources, need for liquidity, time horizon, and tolerance for risk.
An annuity isn’t right for everyone. We can help you understand the available options, compare their benefits and limitations, and determine whether an annuity deserves a place in your overall retirement strategy.
Ready to Explore Annuity Options?
Whether you’re preparing for retirement, looking for ways to protect a portion of your savings, or exploring options for creating dependable lifetime income, we can help you understand the annuity choices available to you.
Let’s talk about your retirement goals and whether an annuity may have a place in your overall strategy.
Helpful Annuity Resources
Learning how annuities work can make it easier to evaluate your options and ask the right questions. These independent resources provide additional information about annuities, retirement planning, and insurance products.
NAIC — Annuities
The National Association of Insurance Commissioners provides information about annuities, including how they work, different types of annuity products, consumer considerations, and the role annuities can play in retirement planning.
Learn More About Annuities from the NAIC
IRS — Retirement Topics: Annuities
The Internal Revenue Service provides information about the federal tax treatment of annuities, including how annuity payments may be taxed and rules that can apply to retirement distributions.
Learn About Annuity Taxation from the IRS
Florida Office of Insurance Regulation — Annuities
The Florida Office of Insurance Regulation provides consumer information and regulatory resources related to annuities and insurance products sold in Florida.