Annuities
Annuities for Retirement Income and Longevity Protection
Beyond Social Security and pensions, annuities are the primary way an individual can add income guaranteed to last for life. Used deliberately, they solve a problem investments cannot: longevity risk.
An annuity is a contract with an insurance company that converts a lump sum into a guaranteed stream of income, either immediately or at a future date. For affluent retirees, annuities are a tool for transferring longevity risk, not a growth vehicle. By covering essential expenses with guaranteed income, you take pressure off your investment portfolio and let it pursue growth without the stress of funding monthly withdrawals in a bear market. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company.
Explore Annuity Topics
Retirement Income with Annuities
How annuities create guaranteed retirement income you cannot outlive. Building an income floor, solving longevity risk, and coordinating with your portfolio.
Read moreIncome Now or Later (Immediate vs. Deferred)
An immediate annuity starts income within a year; a deferred income annuity waits for a larger payout. How to choose, and the tradeoffs for each.
Read moreFixed Indexed Annuities
How FIAs work: index-linked crediting, cap rates, floors, and lifetime income riders. When they fit an affluent retirement plan and when they don't.
Read moreFixed-Rate Annuities (MYGA)
Lock in a set rate for a chosen term, tax-deferred, backed by the insurer rather than the FDIC. How a MYGA compares to a CD and where it fits.
Read moreTax-Deferred Growth: The Rich Man's IRA
A non-qualified deferred annuity grows tax-deferred with no contribution limit and no lifetime RMDs. What the nickname means, and what it does not.
Read moreKeep Control: Growth vs. Annuitizing
You do not have to annuitize. A deferred growth annuity keeps control and access, letting you take income when you choose instead of locking a fixed check.
Read moreQLAC: Longevity Income and Lower RMDs
A deferred income annuity bought with IRA or 401(k) money that starts as late as age 85 and is excluded from RMDs up to an IRS limit, lowering current RMDs.
Read moreAnnuities With a Long-Term Care Benefit
Some annuities boost income if you need care and return value if you never do. How LTC-linked annuities compare to standalone and hybrid coverage.
Read more1035 Exchanges and Annuity Reviews
Move an old annuity into a better one without triggering tax, when it actually makes sense. What to check before any exchange, and when to keep what you have.
Read moreCommon Questions
What problem do annuities solve for affluent retirees?
Annuities solve longevity risk: the possibility of outliving your money. By covering essential expenses with guaranteed income (Social Security plus an annuity), you free your investment portfolio to pursue growth without the pressure of funding withdrawals in a down market. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company.
How is a fixed indexed annuity different from a variable annuity?
A fixed indexed annuity credits interest based on an index (like the S&P 500) subject to a cap rate and a 0% floor, so you never lose principal to index declines, though rider and other charges can still reduce your account value. A variable annuity invests in sub-accounts that fluctuate with the market; you can lose value. FIAs trade upside for downside protection; variable annuities accept risk for higher growth potential.
How much of a retirement portfolio should go into annuities?
A common industry rule of thumb allocates enough to cover the gap between essential expenses and guaranteed income sources like Social Security and pensions, often cited as 20 to 30 percent of assets. But the right amount is an investment-allocation decision to make with your investment adviser, based on your expenses, longevity expectations, existing guarantees, and the liquidity you need outside the annuity.
How do the main annuity types compare?
| Annuity type | Principal risk | Growth | Liquidity | Income timing | Best for |
|---|---|---|---|---|---|
| Fixed-rate (MYGA) | Protected by the insurer | Fixed rate for the term | Limited; about 10% per year free, then surrender charges | When you choose | CD-like certainty, tax-deferred |
| Fixed indexed (FIA) | Protected by a 0% floor | Index-linked, capped | Limited; 7 to 10-year surrender period | Later, via an income rider | Growth potential with downside protection |
| Immediate income (SPIA) | Exchanged for income | None; fixed payments | Very limited; generally irrevocable | Starts within about 12 months | Income needed now |
| Deferred income (DIA / QLAC) | Exchanged for income | None; fixed payments | Very limited; generally irrevocable | A future date you set (QLAC as late as 85) | Higher future or late-life income |
Guarantees, rates, and income are subject to the claims-paying ability of the issuing insurance company, and are not FDIC insured. Terms vary by carrier and product.
What are the risks, costs, and alternatives?
Guarantees depend on the carrier, not the government
Annuities are not FDIC insured. Every guarantee, rate, and income stream is subject to the claims-paying ability of the issuing insurance company, so a carrier's financial strength rating matters. State guaranty associations provide limited, state-specific backstops that are not a government guarantee and should not be relied upon when choosing an insurer.
Liquidity is limited and surrender charges apply
Most deferred annuities allow a penalty-free withdrawal of about 10% per year; beyond that, a declining surrender charge can apply for the length of the term, commonly 3 to 10 years. Income annuities are generally irrevocable once started. Commit only money you are confident you can leave untouched.
Fixed payouts carry inflation risk
A locked rate or level income gives certainty but no inflation adjustment, so the real value of a fixed payout can erode over time. Laddering terms or adding a cost-of-living option can help, though a cost-of-living option generally starts income at a lower amount.
Taxes and alternatives
Gains withdrawn before age 59 and a half can face a 10% IRS penalty on top of ordinary income tax. Annuities are one tool among several: CDs, Treasuries, and bond ladders can fill similar roles, and how much to allocate is a decision to make with your investment adviser.
Is an Annuity Right for Your Retirement?
We analyze your income needs, Social Security timing, and portfolio to determine whether annuities belong in your plan, and if so, how much.
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Living Prepared, LLC is an affiliate of Whitwell & Co., LLC, an SEC-registered investment advisory firm. Insurance and annuity products are offered through licensed insurance professionals. See our Disclosures.
Living Prepared, LLC is an affiliate of Whitwell & Co., LLC, an SEC-registered investment advisory firm. Insurance and annuity products are offered through licensed insurance professionals. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company. See our Disclosures for full details.