Should an Annuity Be Part of Your Income Strategy?

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Record numbers of Americans are retiring. According to the U.S. Census Bureau, there will be over 80 million retirees by 2040. Life expectancies are on the rise – people are living longer. And a large proportion of Americans worry about market risk. They get anxious over how the stock market performs or fear potential losses.

Because of these and other reasons, some Americans have been adopting annuities as transfer-of-risk strategies. They want the guarantees associated with these contracts – particularly the assurance of lifelong income, for many annuity buyers. For those of us worried about outliving our money or other income-related risks in retirement, this raises an important question: “Should an annuity be part of my income strategy?”

It’s indisputable that many Americans desire guarantees in their financial plan, and this number continues to grow. But that doesn’t mean annuities are right for everybody. If you are wondering whether an annuity is for you, here’s a quick look at some situations you may want to consider.

Situations for Judging Annuity Suitability
Remember, any financial strategy depends on your personal needs and situation. Whatever annuity you may be considering, it must fit well into the scope of your plan. And it should be only part of an overall retirement strategy. With that said, let’s get more into situations where annuities may be a worthy option.

Countering risks with annuity guarantees. Annuities are designed to be transfer-of-risk solutions. They can solve or ease a variety of risks, including:

  • Retirement lifetime income
  • Protection of savings against market downfalls
  • Enhanced income for specialized care or confinement needs
  • Legacy planning when someone can’t pass underwriting process for life insurance

At, we believe one of the most appropriate uses for an annuity is for risk transfer. Of course, these contractual guarantees aren’t universally suitable. Everyone has differing levels of risk tolerance. Some people may prefer to leave monies in more aggressive vehicles, such as stocks or bonds. Or their circumstances may be outside these risk scenarios where annuities can be valuable.

Just as annuities work well when they are suitable for retirement needs, they can be a disappointment when used improperly. Be sure to judge your situation carefully and work with a qualified, independent annuity specialist to determine if it’s right for you.

Prioritizing lifestyle over growth prospects. When it comes to retirement, a large percentage of Americans would like to live well. Many of us who are more lifestyle-conscious emphasize quality of life over growth potential, in regards to our money.

In the past, we have talked about how income planning corresponds well with lifestyle goals. This is a different focus than investment growth potential, which zeroes in on asset values and potential returns. Depending on health, appetite for risk, and overall financial circumstances, a contractually guaranteed income stream may be a worthy addition to a retirement strategy.

Supplementing other sources of permanent income. A majority of retired households rely upon Social Security for retirement income. Some of us are receiving lifetime income from defined-benefit pensions. In order to cover all of their monthly lifestyle expenses, many Americans use annuity income to supplement their Social Security and pension income payments.

According to research from LIMRA, 55% of annuity buyers say their top purchasing reason was to “supplement Social Security or pension income.” Part of this may be from a “financial cushioning” standpoint: Social Security and pension payments may be a solid starting point for paying monthly lifestyle expenses, but they don’t cover all of them.

Many annuity owners allocate their lifelong income payments from annuities, Social Security, and other guaranteed sources toward fixed-income needs. Then they allocate remaining income dollars toward retirement luxuries, including vacation getaways or other miscellaneous spending goals. This approach can help shore up any gaps of the income you need to sustain your desired lifestyle.

What about Your Income Plan?
There are many types of annuities, and each insurance company has its own flavors of different contracts and features. You may be unsure about how to judge if an annuity strategy may be a good fit. Should you be ready to see if an annuity can help you obtain permanent, lifelong income or other financial assurances, connecting with a financial professional can help.

You can get a customized annuity quote, or obtain a review of an annuity contract you may be considering or already have. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

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