One of the biggest retirement questions is simple: what happens if you live longer than your savings?
An annuity is a contract with an insurance company designed to answer that question. You contribute money—either as a lump sum or over time—and the company agrees to pay you income, in many cases for the rest of your life.
The Main Types
- Fixed annuities — a set interest rate for a set period. Predictable and straightforward.
- Fixed indexed annuities — growth potential linked to a market index, with the principal protected from direct market losses.
- Immediate annuities — you convert a lump sum into income payments that begin right away.
- Deferred annuities — your money grows tax-deferred now, and income begins at a future date you choose.
Potential Benefits
- Guaranteed lifetime income options you cannot outlive
- Protection of principal from direct market losses (fixed and indexed contracts)
- Tax-deferred growth until withdrawals begin
- Optional riders for income, long-term care, or a legacy for beneficiaries
- A predictable income foundation that complements Social Security and retirement accounts
What to Consider
Annuities are long-term contracts. Most include surrender charges if you withdraw more than the allowed amount during the early years, and withdrawals before age 59½ may be subject to tax penalties. Guarantees depend on the claims-paying ability of the issuing insurance company.
How Families Use Them
Many families pair an annuity with life insurance: the annuity creates dependable income during retirement, while life insurance protects the family and transfers wealth efficiently.
The right mix depends on your goals, timeline, and budget—which is exactly what a free education session is for.