News Release: 1/2/2025

Using an Annuity in Retirement Planning

An annuity is a contract with an insurance company designed to provide a consistent stream of income, or to protect against principal loss, and can be a valuable tool in retirement planning.

The insurance company manages both the investment and mortality risk, providing predictable, guaranteed income for life or a specified period of time — typically to people in or nearing retirement.

Longevity, inflation and market volatility are three major risks people may encounter during retirement. Annuities are insurance products that offer many unique and valuable benefits to help people navigate these risks and bring them financial security.

Longevity Risk means outliving your income or needing long-term care. Inflation Risk results in loss of purchasing power. Market Risk refers to the volatility of the stock market and sequence of returns.

Here are some types of annuities:

Income Annuities In exchange for a lump sum of money, income annuity owners receive a regular, recurring paycheck from the insurance company. Income annuities funded with a single premium (SPIAs) are often combined with other guaranteed income sources such as Social Security or a pension to provide an income floor to cover a retiree’s basic needs.

Fixed Annuities are designed for safety, and are a good fit for retirees seeking tax-deferral, and a guaranteed, fixed rate of interest — regardless of market volatility. A low-risk CD alternative, annuity owners earn a stated rate of interest from the insurance company offering predictable outcomes. Fixed annuities help people save and grow their money on a tax-deferred basis allowing for more efficient growth and greater control over their tax situation. Fixed annuities can also be used to provide guaranteed income.

Multi-year guaranteed annuities (MYGAs) guarantee a fixed interest rate for a specified time period —usually 1 to 10 years — and are subject to surrender charges. However, many carriers offer penalty-free withdrawal provisions.

Fixed Indexed Annuities are unique risk management vehicles that combine the growth potential of index-linked interest, the protection from market downturns and the guarantees of lifetime income. Fixed Index Annuities FIAs are between fixed and variable annuities in terms of risk and return. They offer greater growth potential than traditional fixed annuities with less volatility than variable annuities. FIAs have a guaranteed floor protecting the policy owner against a loss if the index decreases in value. Once the interest is earned and credited, the value of the contract cannot decline, even if the index returns were negative.

Here's how annuities can help secure your retirement:

Asset Preservation: Depending on the type of annuity, it can offer a guaranteed rate of return or protection from market fluctuations. For instance, fixed annuities provide a predictable return, which can lower investment risks compared to more volatile options. This stability can be particularly appealing to retirees who seek to protect their capital after they no longer receive a salary.

Reliable Income Stream: An annuity can offer a dependable and consistent income, ensuring retirees have enough funds to cover essential living expenses.

Protection Against Longevity Risk: Converting part of your retirement savings into an annuity can help guard against the risk of running out of money in later years. Lifetime annuities guarantee income for as long as the retiree lives, providing financial security and peace of mind.

Tax-Deferred Growth: Funds in a deferred annuity grow tax-deferred, meaning the interest earned is typically not taxed until withdrawals are made. This benefit can be advantageous for retirees seeking to maximize the growth of their investments over time. This leaves more money in the annuity to grow and compound, which over time can be a tremendous benefit for the annuity owner.

Supplementing Other Income: Annuities can complement other retirement income sources, such as Social Security, pensions, and withdrawals from retirement accounts. This diversification strengthens overall financial security in retirement.

Simplified Financial Management: Annuities offer a consistent income or fixed return, which can make managing finances easier in retirement by reducing the need for complex budgeting or investment decisions.

While annuities can offer several benefits, there are also some potential drawbacks to consider. Some annuities come with high fees, including administrative charges, surrender charges (for early withdrawals), and management fees for variable annuities. These costs can erode the returns on your investment over time. Annuities can be difficult to understand and may have complicated terms and conditions, making it challenging for investors to fully grasp what they are purchasing.

Before choosing an annuity, retirees should assess their financial situation, retirement goals, and other income sources. Reach out to Mary the Medicare Lady for more information and to design a customized game plan based on your specific needs.

Mary Hiatt is a Retirement & Insurance Advisor and President of Mary the Medicare Lady (A non-government entity.) She offers Educational Workshops on Medicare, Drug Savings, and more at no charge. Not connected with or endorsed by the U.S. government or the federal Medicare program. Medicare Supplement insurance plans are not connected with or endorsed by the U.S. government or the federal Medicare program. See www.hiattagency.com or contact licensed independent agent mary@hiattagency.com or call or text 402 672 9449 for more information.