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Annuities: What You Need to Know

| September 12, 2016
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Annuities

First, let’s define the word annuity. It is “a fixed sum of money paid to someone each year, typically for the rest of their life,” and also “a form of insurance or investment entitling the investor to a series of annual sums.” (Source). Defined benefit pensions and Social Security are two examples of lifetime guaranteed annuities that pay a steady cash flow until one passes.

Typically, annuities can be structured according to a wide array of details and factors. You make either a single payment or a series of payments, and the insurer provides secure tax deferred growth or payments to you for a set period of time. Usually, people looking for ways beyond their IRAs or 401ks to provide stability and growth, or manage income in retirement are the people interested in annuities.

Investors who want the security of a fixed interest rate without risking their principal often seek out fixed deferred annuities.

Annuities are not too good to be true, though. It was this method of selling annuities a few years back that gave them a bad reputation. As with any investment there are risks and rewards. Annuities are subject to inflation – meaning buying power of their fixed-income payments can be reduced. In addition, there are penalties for withdrawing money out of your annuity if you change your mind or incur unexpected expenses. You will also usually pay fees and commissions for managing your annuity.

So who are annuities wrong for? People looking for fairly liquid investments, and who don’t need additional lifetime income beyond their current investments.

Essentially, annuities are not for everyone. But, for some, annuities can be a great way to manage lifetime income and risk.  Like any investment, you should consult your Financial Advisor to see which products would work best in your portfolio to help you reach your financial goals.


Fixed Annuities are products of the insurance industry and are designed for long-term retirement investing. Annuity guarantees are subject to the claims-paying ability of the insurance company. Surrender charges may apply if money is withdrawn before the end of the contract. All withdrawals of tax-deferred earnings are subject to current income tax, and, if made prior to age 59½, may also be subject to a 10% federal income tax penalty. Annuities generally contain fees and charges which include, but are not limited to, sales and surrender charges. Additionally, if purchased within a qualified plan, an annuity will provide no further tax deferral features. The contract, when redeemed, may be worth more or less than the total amount invested.

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