Broker Check

 Is an Annuity Right for You? How to Tell

During volatile markets pre-retirees and retirees often ask us what they can do to secure all or some of their retirement assets. Although, there is no one size fits all, oftentimes the subject of an annuity arises. While annuities can be complicated, the decision about whether one is right for you doesn’t have to be. Some are clearly better candidates for annuities than others.

June 2022 

You can make your best effort for planning your retirement, but how much of what you are thinking, or planning can you control? 

You can’t control the market, how long you’re going to live, inflation, health care costs, your health care needs, tax law changes, pension or Social Security solvency, economic shifts, government intervention, the list goes on.

There is so much uncertainty in life. Besides a weather forecast, we don’t know what tomorrow brings for any of us (and even the weather forecast is not always reliable). All this uncertainty surrounding retirement is why annuities provide certainty during uncertain times.

What is an Annuity?

An annuity is an insurance product that’s designed to payout a stream of income. Depending on the annuity contract provisions, you make a lump-sum purchase payment or multiple purchase payments over a period. In exchange, the insurance company provides certain guarantees that are detailed in your annuity contract. For example, some annuities guarantee a specified interest rate for a set period; other annuities guarantee a specific amount of immediate or future income. 

When should you consider an Annuity?

Since the basics of what an annuity is can be found all over the internet, we rather spend time discussing when or if an annuity is right for your situation. Here are some general guidelines and reasons to consider an annuity.

  • You want an income stream you can’t outlive
  • You want to ensure a beneficiary will receive a continuation of your income stream
  • You are looking for tax advantages
  • You are seeking ways to diversify distributions during retirement
  • You want to protect a portion of your retirement assets from market fluctuation by leveraging an annuity that has down protection and upside potential
  • You do not need access to your money

You want an income stream you can’t outlive.

Annuities can provide an income stream you can’t outlive. That is very advantageous if you have determined your current assets may not last your projected life expectancy. We would say here work with a financial professional to conduct some sort of analysis to determine if that is so, based off your current assets and projected asset growth. We often time provide this analysis during our Financial Plan engagements. We would recommend doing the same.

You want to ensure a beneficiary will receive a continuation of your income stream.

Annuities have payout options you can elect. Here some that will provide a continuation of benefits to a specified beneficiary:

  • With a period-certain payout, you will receive payments for the period your contract specifies. If you pass away before the end of the period, your beneficiary will receive the payments until the end of the period.
  • joint-life payout provides a lifetime payout for the investor and one other person, typically a spouse.
  • life with period certain payout provides payments for the rest of your life, but if you pass away during a specified period, your beneficiary will receive payments for the rest of that period.

You are looking for tax advantages.

Compared to other tax advantage accounts such as Roth, Traditional IRA’s and 401ks, Annuities don’t have annual contribution limits. This provides higher opportunities to defer taxes. Consider a deferred annuity if you are maxing out your current retirement plans.

You want to protect a portion of your retirement assets from market fluctuation.

Although there are two main types of annuities: Immediate and Deferred, there are several different products offered within each type. There are annuity products that offer downside protection of your principal with the ability to capture upside market potential at a cap. Some of these products have low fees. You can invest in these types of annuities for a period and withdraw your funds once that time has concluded without a fee. *

You are seeking ways to diversify your distributions during retirement.

Most people focus on retirement savings but fail to think about their future retirement distribution plan. Which buckets are best to distribute from once in retirement? This requires careful planning to ensure you minimize tax exposure and optimize your annual income. Delaying withdrawals from social security until age 71 can provide a higher payout. An annuity can provide income during that gap. It can also allow other assets invested in the market to continue to grow or rebound from fluctuation.

Consider saying no to annuities: If you don’t fall into one of these categories then it is likely that an annuity isn’t the best option for you. 

We are a strong believer that whether you should use an annuity depends on your situation. That is not a popular stance to have, since those who sells annuities suggest that everyone should own an annuity, while those who sell investments tend to badmouth annuities. Don’t fall into the trap of hearsay. Work with a financial planner for objective fiduciary advice.

*It’s important to note that all products including annuities come with fees and expenses. An annuity can have surrender charges, rider charges, investment management fees, mortality and expense fees and contract management fees.


If you want to discuss this topic further reach out to your Financial Planner or schedule time with one of ours. BOOK TIME HERE