Should You Invest Retirement Savings in Annuities? | SafeMon

Quick Answer: Explore if annuities are the right choice for your retirement savings. Learn more about guaranteed solutions today at SafeMoney.com.

Do annuities make sense for your retirement portfolio? Well, when used right they can be a very powerful financial vehicle, especially for retirement. Annuities allow an investor to pay a lump sum of money upfront and then receive an income stream in return for a set period of time. The insurance company is bound to provide this income stream by contractual guarantees. The income stream can last anywhere from a set duration to a lifetime.

Here’s a quick look at some annuity basics and other helpful tips to consider.

Some annuity Basics and Tips

Generally speaking, annuities come in two flavors: fixed and variable annuities. Fixed annuities have a fixed interest rate and the investor receives a set payment every period. Variable annuities have a variable interest rate, so the annuity payment and overall value depend on the performance of the annuity’s underlying market investment. Fixed annuities may be a more appropriate solution than variable annuities for investors concerned about market risk.

Here are some tips to find what annuity might be right for you and your risk tolerance. Pro tip: Because annuities can be complex products, it’s advisable to work with a financial professional who understands these contracts and their proper uses:

• Identify your financial and income goals. For example, are you looking for growth or income in your portfolio? Does your portfolio prepare you to meet your income and financial needs in retirement? What sources will you receive money from once you retire, and what are the tax implications of those sources?
• Research the best annuities to meet your needs. There are a lot of options for annuities. You should narrow down those that best meet your needs, goals, and overall financial picture. Pay attention to the insurance company offering each contract. What is its financial strength? Does it have solid ratings from A.M. Best and other agencies? Important: What is the insurance company’s solvency ratio, or how much surplus reserves it holds above required reserve amounts? Does its company leadership have a solid industry record? Also, look for annuity options that offer you more at the least cost possible.
• Pick the best annuity for you. After reviewing the data, choose the annuity that best meets all of your goals with regards to cost, performance, and financial objective. Again, working with a financial professional who knows different annuity contracts well is a recommended strategy. Don’t forget to check in on your annuity, and your other portfolio holdings, every quarter to make sure you still have your portfolio working to meet your retirement goals.
• Compare your annuity options. Consider fees, performance, taxes, and other important factors. Be sure to pay attention to contractual guarantees offered by each annuity contract. What does it offer in terms of a guaranteed minimum interest rate, guaranteed income, and guaranteed protections from market risk? Variable annuities don’t offer the same safety as fixed annuities because annuities of the variable flavor are market-based investments. Also, remember that money invested in an annuity grows tax-deferred, so you won’t pay taxes until you start receiving income, or you take money out of the contract.

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If you find a large gap between your income and your living expenses, you may want to investigate an annuity to generate extra income. Or you may want to maximize your income. In that case, annuities can be structured to pay even more.

That said, generating more guaranteed income than you actually need isn’t productive either. One solution is to convert savings into annuities in stages, as you get a feel for your actual living expenses. Laddering strategies, or timing when to purchase different annuities based on contract maturation, can also increase retirement income.

Also, if it makes sense to, consider diversifying your annuities among several insurance companies. And always beware of anyone who prioritizes selling you an annuity over determining your income needs.

Final Thoughts

Roger Ferguson, CEO of TIAA, touches on this approach: “The rise of 401(k)s got people thinking about asset accumulation instead of lifetime income.” Compared with 6% of the population, Ferguson says about 40% of TIAA customers annuitize a portion of their retirement savings.

Today, the Bureau of Labor Statistics estimates that only 22% of full-time private industry workers have a pension. For the rest of us, annuities can help those concerned about a steady stream of income during retirement. Carefully weigh the benefits and costs of annuities against your own retirement income needs, keeping in mind the various types. And always find a provider with your best interests in mind.

Are you ready for personal guidance with planning for your retirement years? SafeMoney.com can help you. 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.

Sources

http://www.nber.org/papers/w22050

https://www.washingtonpost.com/business/get-there/after-youve-saved-for-retirement-annuities-can-help-put-your-nest-egg-to-work/2016/06/03/2593e30c-2739-11e6-ae4a-3cdd5fe74204_story.html?utm_term=.c040e98f60cf

Frequently Asked Questions About should you put your retirement savings into annuities

What are the benefits of using annuities for retirement savings?

Annuities can provide a reliable income stream during retirement, which is especially beneficial for managing living expenses. They often come with options for guaranteed returns, allowing retirees to have peace of mind knowing their income is secure. Additionally, some annuities offer tax-deferred growth, which can enhance the overall value of your retirement savings.

Are there any risks associated with investing in annuities?

Yes, while annuities can offer stability, they also come with certain risks. For instance, if you choose a variable annuity, your returns may fluctuate based on market performance, which could impact your income. Additionally, some annuities have high fees and surrender charges that could reduce your overall returns if you need to access your funds early.

How do I know if an annuity is right for my retirement plan?

Determining if an annuity fits your retirement plan depends on your financial goals, risk tolerance, and income needs. If you prioritize guaranteed income and are looking for safe money alternatives, annuities may be a suitable option. It's essential to consult with a financial advisor to evaluate your specific situation and ensure that an annuity aligns with your overall retirement strategy.

What types of annuities are available for retirement savings?

There are several types of annuities to consider, including fixed annuities, variable annuities, and indexed annuities. Fixed annuities provide guaranteed interest rates, while variable annuities allow you to invest in various portfolios, which can lead to higher returns but also come with more risk. Indexed annuities offer a blend of both, linking your returns to a stock market index while providing some level of protection against losses.

Content reviewed and updated — May 2026

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