4 reasons annuities are used for retirement

Updated: Aug 19

Annuities are used for estate and financial planning because they offer these benefits:

  1. Growth of retirement savings or a benefit;

  2. A promise of payments for a certain period or for life;

  3. A benefit for heirs when life insurance is no longer an option;

  4. Or all of the above.

Social Security and pension plan payments are examples of an "income" annuity. But when payments are deferred, it's a "deferred" annuity.


An income annuity works like a loan in reverse with you receiving payments from the insurance company. But payments from an income annuity may come with a promise they will continue for a lifetime, even after all the savings and earnings have been paid so you or a partner will have no worries.


A "deferred" annuity delays payments so you can grow your savings. Growth is often tax-deferred until savings is withdrawn.


The "maturity" of a deferred annuity is often confused with that of a bank CD. Maturity of a bank CD works like a deferred annuity's "surrender charge" period. But savings in a deferred annuity are often withdrawn before maturity, with no contract penalty, because maturity is only when payments are planned to begin.


Annuities often pay better than a bank CD and may be a better choice when you don't need the savings until age 60.


There are 2 basic types of annuities for growth of savings: variable and fixed.


Variable annuities may offer a payment promise, but your savings are not safe from a market downturn. Variable annuities are for savers with investment experience and who can afford to lose money.


A fixed annuity is the way to go when no worries is the goal:

  1. Earnings tied to a market index strategy;

  2. Earnings paid like a bank CD;

  3. Safety from a market downturn;

  4. Or all of the above.

Fixed annuities offer a promise to pay earnings without the risk of you losing your savings. No more worries of a downturn or market timing.


Annuities are offered by life insurance companies and are backed the insurer's claims-paying ability.


Not everyone can qualify for an annuity. A saver can be too young or too old based on their goal. And savings needed soon or for emergencies should not be used.


But savers love annuities when they know how they work. Call today to learn more or for a review of an existing annuity, including Social Security:

(831) 753-0507

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