Annuities are experiencing a resurgence as retirees seek stable income sources due to factors like stock market volatility and economic uncertainty. From 2022 through 2024, the U.S. annuity industry saw three consecutive years of record-breaking sales, totaling over $1.1 trillion.

However, 澳洲幸运5官方开奖结果体彩网:annuity contracts remain famously complex, with restrictions that can be costly if yo🐬u don’t do your due diligence. Here’s what you should know before committing, including the different annuity types, their pros and cons, and how to assess which option fits yo൲ur needs.

Understanding Annuities

澳洲幸运5官方开奖结果体彩网:Annuities are insurance contracts designed to provide a 澳洲幸运5官方开奖结果体彩网:steady stream of income, typically in retirement. You fund the෴m with a lump sum or series of premiums, and in return, an insurer makes regular payouts to you for a predetermined period, which can be as long as the rest of your life.

The primary purpose of annuities in retirement planning is to help manage 澳洲幸运5官方开奖结果体彩网:longevity risk—the possibility🐼 of outliving your savings. “With the AI era upon us, medical advancements could potentially result in much longer lifespans than previously thought,” said Marcel Miu, CFA, CFP, founder of .

Annuities can also supplement other 澳洲幸运5官方开奖结果体彩网:fixed income sources, such as 澳洲幸运5官方开奖结果体彩网:Social Security benefits, pensions, or bonds. For many retirees, some amount of preꦫdictable𒊎 income can provide peace of mind.

Types of Annuities

Fixed Annuities

澳洲幸运5官方开奖结果体彩网:Fixed annuities provide payouts that remain the same regardless of market fluctuations. Their issuers invest your premiums in conservative assets—such as high-quality corporate and 澳洲幸运5官方开奖结果体彩网:government bonds—and pay you a static amount on a regular schedule, typically monthly.

This low-risk investment approach allows insurers to guarantee your recurring payments, offering predictability. However🍎, fixed annuities often provide lower returns than other investments, and their payouts may struggle to keep pace with inflation.

A common variation of the fixed annuity is the fixed indexed annuity (FIA), also called an indexed annuity. While FIAs protect your principal and offer a guaranteed minimum return, a portion of your interest is also linked to the performance of a market index, like the 澳洲幸运5官方开奖结果体彩网:S&P 500. If the inde🐟x performs well, your inte𒈔rest may increase, giving you the potential for higher returns.

Variable Annuities

In contrast to fixed annuities, 澳洲幸运5官方开奖结果体彩网:variable annuities invest your premiums in market-based assets, such as 澳洲幸运5官方开奖结果体彩网:mutual funds. As a result, your fಌuture payouts and the value of your account will depend on how these underlying investments perform.

While this introduces 澳洲幸运5官方开奖结果体彩网:market risk and the potential for losses, it also means variable annuities provide greater growth potential than fixed annuities. As a result, they may appeal to investors with a higher 澳洲幸运5官方开奖结果体彩网:risk tolerance or a longer 澳洲幸运5官方开奖结果体彩网:time horizon, but they come with added complexity.

“I generally avoid v▨ariable annuities due to their high costs, even though they offer a range of investment options,” said Zach Swad, CF𝔉P, CWS, founder of .

Immediate Annuities

—available in fixed and variable forms—are characterized by a payout phase that starts soon after purchase, generally within one year. You typically fund immediate annuities with a 澳洲幸运5官方开奖结果体彩网:lump-sum payment.

These contracts can🏅 be ideal for retirees or near-retirees who want to quickly convert a portion of their savings into a reliable stream of income.

Deferred Annuities

澳洲幸运5官方开奖结果体彩网:Deferred annuities don’t begin payouts for a potentially years-long period known as an 澳洲幸运5官方开奖结果体彩网:accumulation period, during which your invested premiums grow 澳洲幸运5官方开奖结果体彩网:tax-deferred. Like immediate annuities, deferred annuities can offer fixed or variable returns.

Because you can fund deferred annuities over an extended period, they may be a more s𒊎uitable vehicle for building long-term retirement savings than immediate annuiti♉es.

Choosing the Right Annuity for You

Risk Tolerance and Investment Goals

Selecting the right annuity begins with self-analysis. “Most people approach annuities backward,” said Miu. “They focus solely on the product rather than how it fits into their overall plan. That's like choosing kitchen appliances before designing the house.”

“Understanding personal financial goals and risk appeti﷽te is essential,” said Jordan Gilberti, CFP, founder of . “Annuities can provide peꦗace of mind, but they must fit within the broader context of one's retirement plan.”

Are you looking for predictable income to cover core living expenses, or are you comfortable accepting some market risk in exchange for higher growth potential? This is often greatly informed by how an annuity fits in with your other retirement assets and income streams🍒.🍷

“Emotional risk tolerance also matters,” said Swad. “If someone historically sold out during events like the 2008 crisis or COVID volatility, that's a sign they may need to assess how much fluctuation they can truly stomach before hitting the panic button.”

Payout Timing Needs

Income timing needs are also important to consider, as they𒊎’ll ꦰtypically guide you toward either an immediate or deferred contract.

“Immediate annuities are best suited for clients who need guaranteed lifetime income now—especially if their essential expenses aren't fully covered by existing sources, like Social Security or a pension,” said Swad.

“Deferred income annuities that eventually convert to lifetime income (e.g.🐈, starting in 5–10 years), can also be used to lock in future income needs,” said Swad. For example, say you’re a decade out from retirement and your projected Social Security benefits fall short of your estimated living expenses in retirement. You m✨ight purchase a deferred annuity that starts paying out in a decade to make up for the expected shortfall.

Deferred annuities can also help address intermediate-term needs. “For instance,” said Swad, “if a client won't begin Social Security for three years and needs $60,000 per year to bridge that gap, I may build a ladder using bonds and annuities that can serve that purpose. We could buy a one-year bond, a two-year bond, and a three-year fixed annuity, each with $60,000 in principal invested.”

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Additional Considerations

Annuities allow for count📖less riders, opening up many other critical decisions. One of the most important is payment duration: whether you want to spread your annuity income over a set period or the rest of your life.

“Most income annuities I use are structured for lifetime income, which helps protect against longevity risk,” said Swad. “Some do offer shorter terms, but they're less common and often not as beneficial for long-term retirement planning.”

Spousal coverage is another major consideration, as it determines what happens when you pass away. “Spousal coverage is critical in many cases,” said Swad. “If the⛎ surviving spouse would still need income, choosing a joint-life payout ensures the income continues for the remainder of both lives.”

澳洲幸运5官方开奖结果体彩网:Inflation protection is also worth considering, though it can be misunderstood. “While some annuities offer a fixed percentage increase each year (e.g., 2% or 3%), it's usually not tied to the CPI or an actual inflation index,” said Swad. “These riders also often come with a significantly red𝔉uced initial payout.”

Pros and Cons of Annuities

The primary appeal of an annuity lies in its promise of stability. “In 2025, annuities are increasingly integral to 澳洲幸运5官方开奖结果体彩网:retirement strategies🌜 for clients seeking predictable income,” said Gilberti. “With market fluctuations and economic uncertainties, annuities offer a sense of security that many retirees find appealing.”

Annuities are also hi𓆏ghly customizable, allowing you to tailor their income streams to fill specific gaps in your retirement plan—whether that’s a long-term need for fixed income or a short-term bridge until you start drawing Social Security.

However, annuities also come with significant downsides, including non-transparent and restrictive fees—such as 澳洲幸运5官方开奖结果体彩网:surrender charges—that ca🔯n trap consumers. “Whi🍃le annuities offer stability, their complexity and potential penalties for early withdrawal necessitate a clear understanding,” said Gilberti.

If you can navigate their twists and turns, annuities can be beneficial—as long as you align them to your personal finances. “Annuities aren't magic potions, but they're not boogeymen either,” said Miu. “The right one, used the right way, can be a valuable piece of your financial picture.”

The Bottom Line

Annuities can play a valuable role in your retirement🎶 strategy, offering stability, customizable income streams, and protection against longevity risk. However, their complexity, fees, and restrictions require careful consideration.

Before committing, take stock of 🔴your unique financial situation, including your income needs, risk tolerance, and goals. When you’re ready to start comparing options, a qualified financial advisor can help you understand contract terms and ensure the annuity you choose complements the rest of your retirement plan.