Is an annuity right for you? One of Americans’ biggest fears is running out of money in retirement. In fact, one survey says that 40 percent of Americans fear retirement more than death.
It makes sense, then, that people who have the benefit of guaranteed lifetime income are more confident about a successful retirement.
Retirement income strategies
A pension is one way to achieve that. Today, though, they are mostly limited to federal, state and local government employees. Only about 14 percent of corporations offer pensions today, down from 60 percent in the 1980s.
Slightly more than 40 percent of Americans participate in a 401(k), but they are built to help you save for retirement, not about how to withdraw your savings without depleting them.
How about Annuities?
For some the answer can be annuities. Be aware, though – they aren’t for everyone, and some financial advisors are still wary of them. Annuities can be complicated, so before you decide, you should talk to a financial professional. But let’s start with some basics.
What’s an Annuity?
An annuity is a contract with an insurance company that offers a guarantee in the form of a steady stream of income or a death benefit. You can purchase an annuity with a lump sum payment or make payments over a set number of years. The agent is paid a commission, depending on how much money you invest. That’s one reason some unscrupulous agents have in the past sold them to people who should never have gotten into them.
Annuities: Immediate vs. Deferred
- An immediate annuity is funded with a lump sum payment, such as money from a retirement account or savings. You can begin to withdraw funds usually within 30 days.
- With a deferred annuity, “you don’t start taking the money until some future date, because otherwise it would be an immediate annuity,” says Robert Gilliland, managing director and senior wealth advisor at Concenture Wealth Management in Houston, Texas.
“There will be some form of a guarantee on the money,” said Gilliland. That that could be a guarantee in in the form of a stream of income, or a death benefit.”
In a sense, annuities act much like pensions. You money is annuitized over a certain period, generally your lifetime.
Types of Annuities
There are basically three different types of annuities.
Variable annuities allow you to invest in mutual funds or Exchange Traded Funds (ETFs), offering the opportunity to grow with the market. They will either have a death benefit guarantee or some sort of income guarantee.
Fixed annuities pay a specified interest rate on your funds while they are invested. The challenge is inflation.
Indexed annuities offer guaranteed minimum rate and a maximum rate. For example, you might have a minimum rate of 2 percent and a maximum of 6 percent, said Gilliland. Your return depends on the market.
As with traditional 401(k) and other traditional retirement accounts, contributions to annuities are tax deferred. Your investments grow tax free until withdrawal, including reinvestments and dividends. The amount of the tax depends on whether you funded the annuity with pre-tax or after-tax dollars. They are taxed as ordinary income. And like other retirement accounts, withdrawals before 59 ½ will result in a 10 percent penalty.
And for the most part, gone are the days when someone dies early, and the heirs lose whatever benefit was left in the annuity. “At a minimum, the annuity contract will provide some type of residual benefit,” says Peter J. Landry, director of insurance and annuities at Wells Fargo. “That’s typically the amount that’s been put into the contract less distributions. That’s the sort of the baseline minimal amount.
In a sense, annuities act much like pensions. You money is annuitized over a certain period, generally your lifetime.
A single-life annuity would generally have the biggest payout, but payments end if the annuity holder dies. Joint and survivor annuity would continue to the spouse or survivor if the annuity holder dies. However, the payments are lower considering the risk of paying over two lifetimes instead of one. A period certain annuity pays benefits for a set period rather than lifetime – typically 10 to 20 years.
Rather than annuitizing, a holder can choose the option of taking withdrawals. Like other retirement accounts, they may be subject early withdrawal, called surrender charges, and tax penalties. However, many annuity contracts allow withdrawals without surrender charges, as long as it is not an early withdrawal.
Annuity pros and cons
Among the cons: the price. “The cost of annuities it’s not for everyone, but there is a degree of value certainly provided in the inherent benefits of having that annuity contract to allow allow the peace of mind,” Landry says.
And the top pro: the tax benefits and the lifetime income guarantee that annuities can provide.
Rodney A. Brooks is the former deputy managing editor/Money at USA TODAY. His retirement columns appear in U.S. News & World Report and Senior Planet.com. He has written for National Geographic, The Washington Post and USA TODAY. The author of “Fixing the Racial Wealth Gap,” Brooks has testified before the U.S. Senate Special Committee on Aging. His website is www.rodneyabrooks.com
Your use of any financial advice is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services makes no claim or promise of any result or success.
Stay on top of your finances with Senior Planet from AARP. Join us for live lectures on finance, money management, budgeting tips, and more by checking here. Questions? Call our dedicated help hotline: 888-713-3495.
COMMENTS
Sign Up for Newsletters
There’s always a lot going on in the Senior Planet universe. Get our newsletters to make sure you never miss a thing!
Sign Up Now
Join Senior Planet Community
Senior Planet Community is our social media platform designed specifically for older adult users. Engage in thought-provoking discussions, make new friends, and share resources all on a safe and ad-free platform.
Join the Conversation Today
Upcoming Online Classes
Calendar of Events
S Sun
M Mon
T Tue
W Wed
T Thu
F Fri
S Sat
0 events,
12 events,
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Intro to Translation Tools
Intro to Translation Tools
This lecture will introduce digital translation tools and apps, such as Google Translate.
Fit Fusion Workout
Fit Fusion Workout
Get your heart pumping during this fun, high-energy workout!
15 events,
29
Stronger Bones
Stronger Bones
Activate the joints and muscles and increase mental focus during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Internet of Things: Entertainment
Internet of Things: Entertainment
This lecture will explore the many ways we interact with IoT on a day-to-day basis and take a look at how it’s revolutionizing entire industries.
13 events,
30
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Discover Live: Krakow, Poland
Discover Live: Krakow, Poland
Join Senior Planet and our tour guides from Discover Live for a virtual visit to Krakow, Poland!
Fit Fusion Workout
Fit Fusion Workout
Get your heart pumping during this fun, high-energy workout!
15 events,
31
Balance/Strength
Balance/Strength
Activate the joints and muscles to become limber and increase balance during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Money Matters
Money Matters
This lecture introduces online banking and goes over how to keep your financial information safe.
8 events,
1
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
P2P Payment Services
P2P Payment Services
In this lecture, you’ll learn about some of today’s most popular P2P payment services, including PayPal, Venmo, and CashApp.
Tai Chi
Tai Chi
Relax your mind and strengthen your body with this gentle exercise class
0 events,
2
0 events,
3
0 events,
4
15 events,
5
Stronger Bones
Stronger Bones
Activate the joints and muscles and increase mental focus during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Affordable Home Internet
Affordable Home Internet
This lecture goes over basic information you need to know when signing up for home internet service.
13 events,
6
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Discover Live: Seville, Spain
Discover Live: Seville, Spain
Join Senior Planet and our tour guides from Discover Live for a virtual visit to Seville, Spain!
管理個人隱私簡介
管理個人隱私簡介
一起來學習互聯網隱私維護的小貼士吧!
14 events,
7
Balance/Strength
Balance/Strength
Activate the joints and muscles to become limber and increase balance during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Intro to Translation Tools
Intro to Translation Tools
This lecture will introduce digital translation tools and apps, such as Google Translate.
8 events,
8
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Protecting Your Personal Info Online
Protecting Your Personal Info Online
This presentation will cover the ins and outs of how to protect your personal information online.
Tai Chi
Tai Chi
Relax your mind and strengthen your body with this gentle exercise class
0 events,
9
0 events,
10
12 events,
11
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Mobile Health Apps
Mobile Health Apps
This lecture introduces common health apps, like the iPhone's built-in app and the Google Fit app.
Fit Fusion Workout
Fit Fusion Workout
Get your heart pumping during this fun, high-energy workout!
16 events,
12
Stronger Bones
Stronger Bones
Activate the joints and muscles and increase mental focus during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Smartphones at a Glance
Smartphones at a Glance
In this lecture you’ll learn about popular smartphones on the market and some of their pros and cons.
12 events,
13
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Online Shopping
Online Shopping
This lecture will provide a general introduction to shopping online using the popular website Amazon.com.
點對點付款
點對點付款
如果您還不太了解點對點付款,快來聽聽這堂講座!
14 events,
14
Balance/Strength
Balance/Strength
Activate the joints and muscles to become limber and increase balance during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
eBay & PayPal
eBay & PayPal
This lecture provides an overview of the popular auction website eBay and the pioneer online payment service PayPal.
8 events,
15
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Introduction to Learning Apps – Languages & The Arts
Introduction to Learning Apps – Languages & The Arts
This presentation will introduce you to apps that help you learn different languages, explore the arts and art history, and even show you how to play instruments.
Tai Chi – CANCELED
Tai Chi – CANCELED
Today's session has been canceled. We apologize for the inconvenience. Please join us next week.
0 events,
16
0 events,
17
12 events,
18
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Telemedicine
Telemedicine
This lecture provides an overview of telemedicine options and focuses on exploring virtual medical appointments with your doctor in real-time.
Fit Fusion Workout
Fit Fusion Workout
Get your heart pumping during this fun, high-energy workout!
16 events,
19
Stronger Bones
Stronger Bones
Activate the joints and muscles and increase mental focus during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
All Things Zoom
All Things Zoom
This lecture will go over how to use Zoom to chat with friends & family, and take virtual classes with Senior Planet!
13 events,
20
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Introduction to Hosting on Zoom
Introduction to Hosting on Zoom
In this introductory lecture, we'll go over what you need to start your first meeting, as well as some hosting tips to make it a success.
A.I. 人工智能簡介
A.I. 人工智能簡介
快來和 ChatGPT 聊天,了解 A.I.!
15 events,
21
Balance/Strength
Balance/Strength
Activate the joints and muscles to become limber and increase balance during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
eBay & PayPal
eBay & PayPal
This lecture provides an overview of the popular auction website eBay and the pioneer online payment service PayPal.
10 events,
22
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Podcasts
Podcasts
In this lecture, you'll learn more about these audio programs available on the internet: why people listen to them, where you can find them, and what the most popular ones are.
Tai Chi
Tai Chi
Relax your mind and strengthen your body with this gentle exercise class
0 events,
23
0 events,
24
13 events,
25
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Online Health Resources
Online Health Resources
Learn how to evaluate health-related information online.
Fit Fusion Workout
Fit Fusion Workout
Get your heart pumping during this fun, high-energy workout!
16 events,
26
Stronger Bones
Stronger Bones
Activate the joints and muscles and increase mental focus during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
MyChart
MyChart
Learn how MyChart can help you keep all your health information in one place, communicate with your providers, and have a virtual visit.
12 events,
27
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Discover Live: Tunis, Tunisia
Discover Live: Tunis, Tunisia
Join Senior Planet and our tour guides from Discover Live for a virtual visit to Tunis, Tunisia!
關於 Zoom 的一切
關於 Zoom 的一切
了解如何使用 Zoom 與家人朋友聊天以及參與 Senior Planet 線上學習!
15 events,
28
Balance/Strength
Balance/Strength
Activate the joints and muscles to become limber and increase balance during this exercise class.
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Intro to Managing Your Privacy
Intro to Managing Your Privacy
Concerned about privacy? Unsure about accepting cookies? Come learn about some essential privacy tips!
9 events,
29
Morning Stretch
Morning Stretch
Start your day with a short morning stretch!
Online Travel Sites
Online Travel Sites
Learn the basics of using online travel sites to find the best fares and rates for just about any destination.
Tai Chi
Tai Chi
Relax your mind and strengthen your body with this gentle exercise class
0 events,
30
Morning Stretch
Intro to Translation Tools
Fit Fusion Workout
Stronger Bones
Morning Stretch
Internet of Things: Entertainment
Morning Stretch
Discover Live: Krakow, Poland
Fit Fusion Workout
Balance/Strength
Morning Stretch
Money Matters
Morning Stretch
P2P Payment Services
Tai Chi
Stronger Bones
Morning Stretch
Affordable Home Internet
Morning Stretch
Discover Live: Seville, Spain
管理個人隱私簡介
Balance/Strength
Morning Stretch
Intro to Translation Tools
Morning Stretch
Protecting Your Personal Info Online
Tai Chi
Morning Stretch
Mobile Health Apps
Fit Fusion Workout
Stronger Bones
Morning Stretch
Smartphones at a Glance
Morning Stretch
Online Shopping
點對點付款
Balance/Strength
Morning Stretch
eBay & PayPal
Morning Stretch
Introduction to Learning Apps – Languages & The Arts
Tai Chi – CANCELED
Morning Stretch
Telemedicine
Fit Fusion Workout
Stronger Bones
Morning Stretch
All Things Zoom
Morning Stretch
Introduction to Hosting on Zoom
A.I. 人工智能簡介
Balance/Strength
Morning Stretch
eBay & PayPal
Morning Stretch
Podcasts
Tai Chi
Morning Stretch
Online Health Resources
Fit Fusion Workout
Stronger Bones
Morning Stretch
MyChart
Morning Stretch
Discover Live: Tunis, Tunisia
關於 Zoom 的一切
Balance/Strength
Morning Stretch
Intro to Managing Your Privacy
Morning Stretch
Online Travel Sites
Tai Chi
Recent Articles
Recent Comments