YOUR GUIDE TO RETIREMENT

Annuities operate as contracts between you and an insurance company, with terms designed to meet your specific financial objectives.

In the accumulation phase, you contribute money to the annuity through a lump sum or periodic payments. Depending on the type of annuity, your contributions may grow at a fixed rate, be linked to market performance, or fluctuate with investments.

In the payout phase, the annuity begins disbursing income based on the terms of your contract. Payouts can be structured in numerous ways, including:

• Lifetime Income: Guaranteed payments for the rest of your life.
• Joint Life: Payments continue for as long as you or a designated beneficiary live.
• Lifetime Income with Guarantees: Guaranteed payments for the rest of your life with a guarantee return of principal to your beneficiaries.
• Period Certain: Payments for a set number of years.

The flexibility of annuity payouts makes them adaptable to your needs, whether you want a steady retirement income, plan to cover specific expenses, or provide for loved ones.

One important consideration is the tax treatment. While contributions may not be tax-deductible, the growth is tax-deferred. Taxes are only paid upon withdrawal and may be spread out over many years. This offers a potential advantage if you’re in a high tax bracket during your working years.

Annuities also come with optional features, such as riders for lifetime income, death benefits, or long-term care. These add-ons enhance the annuity’s utility but often come with additional costs.

By understanding how annuities work, you can better evaluate their role in your financial strategy, ensuring they align with your needs and goals.

TYPES OF ANNUTIES

The diverse range of annuities available makes it possible to tailor these products to your needs. Understanding the key types is the first step in choosing the right one.

* Fixed Rate Annuities, also called Multi-Year Guaranteed Annuities (MYGAs)are the simplest type, offering a guaranteed interest rate for a specified period. They function much like certificates of deposit (CDs*) but often provide higher returns. They’re ideal if you’re looking for guaranteed returns over a specific time frame.

* Fixed Indexed Annuities (FIAs) combine the safety of fixed annuities with growth potential tied to a market index, such as the S&P 500. While returns depend on market performance, FIAs include a limit on the index return and principal protection, ensuring you won’t lose money even during a downturn. This makes them a great choice if you’re seeking moderate growth with minimal risk.

* Immediate Annuities begin paying income shortly after a lump sum is invested. These are particularly useful if you’re retired and need cash flow now, allowing you to convert your savings into a predictable income stream.

* Deferred Income Annuities (DIAs), on the other hand, allow you to invest money today and start receiving income at a future date. DIAs are often used to address longevity risk, ensuring you have income during later years when other resources may have been depleted.

* Variable Annuities are for those of you willing to take on more risk for potentially higher returns. These annuities allow you to invest in sub-accounts, similar to mutual funds, with the value of your annuity fluctuating based on market performance.

Each of these annuity types serves a different purpose, making it crucial to assess your financial goals and risk tolerance before choosing

 WHO SHOULD BUY ANNUITY

Annuity. Maybe you’ve never heard the word, or you have heard the word, but have no idea what it is. This article will help you understand what an annuity is and the questions you should ask yourself to find out if an annuity is right for you.

What is an annuity?

The Merriam-Webster definition is:

annuity – noun

• a sum of money payable yearly or at other regular intervals
• the right to receive an annuity.
• a contract or agreement providing for the payment of an annuity.

So, now we know the basic definition of an annuity has something to do with getting income or payments at regular intervals. Basically, a paycheck. That original version of annuities has been around for 2,000+ years. Today they are called Single Premium Immediate Annuities (SPIA) or immediate annuities. But there are several more types of annuities available today. Going forward we are going to focus on fixed annuities only.

While all annuities have an option for income, many annuities are used as an alternative to other savings options. To put it simply, they are another place you can put your money and have it “do something”.

What can fixed annuities do?

• Protect your money.
• Guarantee a return.
• Guarantee income.

Let’s break down each point.

Protect Your Money
A fixed annuity is designed so that if you keep your money in the product for the agreed upon time, you will not lose any money. This is different than other types of accounts like mutual funds or money markets where those guarantees are not available.

Guarantee a Return
Without getting into the weeds of specific product types, there is a type of annuity called a Fixed-Rate or Multi-Year Guaranteed Annuity (MYGA) that will guarantee a specific interest rate for a specific number of years. There are also Fixed-Index Annuities that guarantee a rate based certain percentage of stock market indexing returns. A guaranteed return is one of the biggest reasons people buy annuities.

Guarantee an Income
As we have already discussed, a SPIA guarantees income. There are other options that guarantee income such as income riders attached to deferred annuities, or interest withdrawals from a MYGA.

Now that you have a basic understanding of what an annuity is and what it can do, let’s get back to the main question.

Who should buy an annuity?

Annuities should be purchased by someone who wants the guarantees the annuity can provide.

• Do you need to guarantee income for a specific time frame or maybe your lifetime?
• Do you want to earn a certain interest rate on your money, and you are OK not using it for a period of time.
• Are you more concerned about not losing your money than getting the highest growth rate?
• Do you want to diversify your portfolio?

If you answered yes to any of these questions, an annuity might be right for you.

 ANNUITY FEE AND COSTS

Understanding the potential costs associated with annuities is crucial to evaluating their value. While annuities provide significant benefits, it’s important to be aware of fees that may apply:

Types of Fees:

• Rider Fees: Optional features, like lifetime income or death benefits, often come with additional costs.
• Surrender Charges: If you withdraw more than the peSnalty-free amount during the surrender period (typically 5–10 years), you may incur a fee.
• Investment Management Fees: For variable annuities, there may be charges related to managing the underlying investment accounts.
• Mortality and Expense Risk Charges: Found in variable annuities, these fees compensate the insurer for the risk they take on.

How to Minimize Costs:
Choose an annuity that aligns with your financial goals and avoid features you don’t need. Fixed and indexed annuities generally have lower fees compared to variable annuities. Reviewing the fee schedule with a professional can help you understand exactly what you’re paying for.

If you’re looking for stability, guaranteed income, or tax advantages, the value of an annuity often outweighs its costs. Understanding these fees upfront ensures that you’re making an informed decision.

 WHO NEEDS ANNUITIES

Annuities aren’t for everyone, but they can be a good fit for the right people, depending on your financial goals.

Risk-Averse Investors: Fixed rate and fixed indexed annuities appeal to you if you prioritize safety over growth. These products protect principal while delivering modest returns, making them ideal if you’re nearing or in retirement and simply want to minimize risk.

Retirees Seeking Guaranteed Income: If you’re retired, the predictability of guaranteed annuity payments can be attractive. With the decline of traditional pensions, annuities provide consistent income to cover expenses. They eliminate the risk of running out of money, offering peace of mind and stability in retirement.

Longevity Planners: Deferred income annuities also know as longevity annuities are tailored for those of you who are concerned about outliving your savings. These products allow you to plan for a steady income stream, providing future financial security.

Tax-Sensitive Individuals: If you’re looking to manage tax exposure, annuities are a strategic choice. The tax-deferred growth feature allows your investments to compound more effectively, which can be an advantage if you’re in a high tax bracket during your working years.

Legacy Planners: Many annuities come with death benefit riders, allowing you to leave a financial legacy for your beneficiaries. These products are especially attractive if you want to ensure your loved ones are financially secure after you’re gone.

Younger Investors Exploring Long-Term Strategies: While often associated with retirees, annuities can also benefit you if you’re younger. By locking in future income or protecting against market risks, annuities provide a versatile tool for long-term financial planning.

 

SUMMARY

Most retirees aren’t chasing market highs—they’re chasing peace of mind. After decades of saving, the goal isn’t to double your money overnight. It’s to make sure what you’ve saved is still there when you need it.

In this article, we’ll walk through the best annuity options for people who prioritize preserving their principal and getting predictable results—even if the market takes a turn. Specifically, we’ll look at:

• How fixed annuities protect your savings
• How indexed annuities offer growth with downside protection
• What kind of returns you can realistically expect

Let’s break it down.

How Fixed Annuities Provide Principal Protection

If you’re in or near retirement and you find yourself saying, “I just want something safe,” you’re not alone. After decades of ups and downs in the market, many people just want to protect what they’ve worked hard to save. That’s where fixed annuities come in.

What does “principal protection” really mean?

With a fixed annuity, the money you put in—your principal—is not subject to market risk. That means even if the stock market has a bad year (or several), your fixed annuity won’t lose value due to those swings.

It’s similar to how a certificate of deposit (CD) works at a bank but issued by an insurance company instead. Your funds earn a guaranteed interest rate for a set period, typically 3 to 10 years, and that rate won’t change, no matter what’s happening in the economy.

Why does this matter for retirement?

Once you’re retired, it’s not just about growing your money—it’s about preserving it. A market loss at 67 can derail your entire retirement plan.

Fixed annuities protect your savings from:

• Market downturns – your value won’t drop if the stock market does
• Emotional investing – you don’t have to worry about when to get in or out
• Hidden volatility – your returns are predictable and contractually guaranteed

 

 Example: Meet Diane

Diane is 68 and recently retired. She has $300,000 in savings and doesn’t want to risk it in the stock market anymore. She puts $100,000 into a 5-year fixed annuity earning 4.8% annually. She knows exactly what her account will be worth at the end of the term—and she doesn’t lose sleep over market headlines anymore. For Diane, safety wasn’t just a preference—it was a requirement.

How Indexed Annuities Offer Growth with Downside Protection

If fixed annuities are like parking your money in a safe, predictable place, fixed indexed annuities (FIAs) are more like putting your money in a safety net that moves with the market—but never lets you fall below zero.

So what is a fixed indexed annuity?

A fixed indexed annuity is still a principal-protected product. Your account won’t lose value due to market losses. But unlike traditional fixed annuities that pay a flat interest rate, indexed annuities offer the potential to earn more based on the performance of a stock market index (like the S&P 500).

You’re not investing directly in the market. Instead, your interest is linked to it. If the market performs well, you can earn a portion of that upside. If it drops, your worst-case scenario is earning 0% interest for that year, but you’ll never lose a dime of your original premium.

Why this appeals to “cautious optimists”

Many retirees fall into a middle category: they want protection, but they’re open to modest growth. They’re not chasing double-digit returns—they just want to keep up with inflation without taking on full risk.

Index annuities appeal to this mindset because they offer:

• Downside protection – Your principal is never at risk due to market performance
• Growth potential – Earn more in good years than a fixed annuity or CD
• Predictable worst-case scenario – The “floor” is always zero

Example: Meet Tom and Linda

Tom and Linda, both 62, are recently semi-retired. They’re worried about inflation eating away at their savings but can’t stomach another 2008-type event. They choose a fixed indexed annuity with a 10-year term, linked to the S&P 500, with a 6% cap and 0% floor. In a good year, they might earn 5% or 6%. In a bad year, they earn nothing—but they never lose any of their principal.

For them, the peace of mind is worth more than chasing the highest return.

What Kind of Returns Can You Expect?

One of the most common questions we hear is: “How much will I earn?” And it’s a fair one.

But here’s the truth: annuities aren’t designed to chase the highest return. They’re designed to offer a balance of growth, protection, and guaranteed income.

Fixed annuity returns: predictable and steady

With a multi-year guaranteed annuity (MYGA), you know your exact interest rate and maturity value upfront. Rates vary by insurer and term, but in 2025, you might see:

• 3-year MYGAs: 4.75% to 5.50%
• 5-year MYGAs: 5.0% to 5.95%
• 7–10-year MYGAs: 5.2% and up

You won’t earn more if the market goes up—but you also won’t earn less if it goes down.

Indexed annuity returns: market-linked, but with limits

Returns are tied to an index like the S&P 500, but your gains are capped. Common structures include:

• Caps: Max interest you can earn annually (e.g., 6%)
• Spreads: Amount subtracted from gains (e.g., market return minus 1.5%)
• Participation rates: Share of the index gain you receive (e.g., 50%)

In a strong year, you might earn 4–8%. In a flat or down year, you might earn 0%.

It’s not about beating the market — it’s about removing the stress.

For most risk-averse retirees, the return of your money matters more than the return on your money.

Would you trade the possibility of a big return for the certainty of a steady one? If the answer is yes, annuities might be worth exploring.

Choosing where to place your retirement savings isn’t just a financial decision — it’s an emotional one. The right solution depends on how much risk you’re willing to take, how much income you’ll need, and how important peace of mind is to you.

Fixed and indexed annuities offer a unique blend of protection and predictability that other financial products often can’t match. They’re not for everyone—but for the risk-averse retiree, they can provide something priceless: the confidence to stop worrying and start enjoying retirement.

You’ve done the hard part—saving and planning. Now it’s time to let your money do the work while you enjoy the next chapter.

If safety is your top priority, we’re here to help you explore annuity options that match your goals—without the pressure.