Annuities Made Simple (Honestly)
Clear, unbiased guidance from a CFP® and independent broker
What are Annuities?
Annuities are long‑term insurance contracts that protect your savings or turn your savings into guaranteed income you can’t outlive. You pay a deposit to an insurance company—either all at once or over time—and in return, they promise steady, predictable payments in the future. Or, depending on the type of annuity, your savings grow with no risk of principal loss.
Think of an annuity as a personal pension: a way to create reliable retirement income, protect your money from market swings, and ensure you don’t run out of income later in life.
Types of Annuities
Two types of annuities exist - immediate and deferred annuities. After these two types, many subtypes exist.
Immediate Annuities
Deferred Annuities
Immediate annuities pay you a monetary benefit for a certain number of years, jointly with your spouse, for life, and more. This payment process is known as "annuitization".
You make an investment deposit to an insurance company. In turn, you receive a payment stream (including interest) that you can't outlive.
With deferred annuities, you pay into / invest into an annuity contract. Your investment grows tax deferred. This period is known as the "accumulation period".
At a later time, typically at retirement, you "annuitize" your account. You then receive a monetary benefit for a certain number of years, jointly with your spouse, for your own life, and more. See the immediate annuities section.
Types of Immediate Annuities
The most common type of immediate annuities is the single-premium immediate annuity (SPIA). You pay a deposit or lump sum to an insurance company. In turn, they pay out the lump sum back to you in installments, with interest, over your life (i.e., single life), you and your spouse's life (joint life), or over a certain timeframe (period certain).
Types of Deferred Annuities
Many types of deferred annuities exist. Deferred annuities include multi-year guaranteed annuities (MYGA), traditional fixed annuities, and fixed index annuities (FIA), and deferred income annuities (DIA). Many deferred annuities today contain additional benefits, with some offering long-term care benefits.
With
annuities,
your savings are protected. That's
taking care of your future.
What you get with every plan
Peace of mind knowing you have a strategy designed to provide a reliable stream of income throughout retirement.
I help match annuity solutions to your unique goals, timeline, and risk tolerance so your plan fits your needs.
Many annuity options can help protect your savings from market downturns while preserving your retirement goals.
You'll feel more confident knowing you have a plan in place to help cover future living expenses and maintain your lifestyle.
I explain complex annuity options in easy-to-understand terms, helping you make informed decisions without feeling overwhelmed.
Appreciate the comfort of knowing you have taken a proactive step toward creating a more secure financial future for yourself and your loved ones.
Frequently Asked Questions
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What is an annuity and how does it work?
An annuity is a long-term financial contract with an insurance company where you contribute money—either as a lump sum or over time—in exchange for regular income payments, usually during retirement. Annuities have two main phases: the accumulation phase, when the money grows (tax‑deferred in most cases), and the payout or annuitization phase, when income payments begin. Annuities are commonly used to provide predictable retirement income and help reduce the risk of outliving savings.
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What are the main types of annuities?
The four main types of annuities are:
- Fixed annuities – Provide guaranteed interest rates and stable income.
- Multi-year guaranteed annuities – Offer a fixed interest rate for a specific timeframe. Earnings and the interest rate are guaranteed for the duration of the timeframe.
- Indexed annuities – Earnings are linked to a market index (such as the S&P 500) but typically include downside protection.
- Immediate annuities – Begin paying income shortly after a lump-sum investment.
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Are annuities a good investment for retirement?
Annuities can be a good retirement planning tool for people who want guaranteed income, protection against market volatility, and greater financial security in retirement. They are designed to help turn a portion of your savings into a predictable income stream that can last for a set period or even for life. The right annuity depends on your age, retirement goals, risk tolerance, and overall financial plan, which is why it's important to review your options with a licensed professional (like me) to determine whether an annuity fits your needs.
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How are annuities taxed?
Annuities grow on a tax-deferred basis, which means you generally do not pay taxes on earnings until you begin taking withdrawals or receiving income payments. Earnings withdrawn from an annuity are typically taxed as ordinary income, and withdrawals before age 59½ may be subject to an additional IRS penalty unless an exception applies. The exact tax treatment depends on whether the annuity was funded with pre-tax or after-tax dollars, so it's important to review your specific situation with a financial or tax professional.
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What are the pros and cons of annuities?
Advantages and disadvantages of annuities exist. Here is a list:
Pros:
- Guaranteed income options for life
- Tax-deferred growth
- Protection from market losses (depending on annuity type)
- Can help manage longevity risk
Cons:
- Limited liquidity and surrender charges
- Fees (especially for variable annuities)
- Complexity compared to other retirement products
- Earnings taxed as ordinary income
Understanding these tradeoffs is critical before including annuities in a retirement strategy.
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