How an annuity can help you plan for retirement
- An annuity may help support retirement planning by providing a steady income stream.
- Depending on the type, annuities can help with asset preservation, longevity protection and tax-deferred growth.
- In retirement, an annuity can complement Social Security, pensions and retirement account withdrawals to support overall financial stability.
By: Annuity Solutions & Advice Team
With more than 4 million Americans reaching age 65 each year during the mid-2020s, more people may have questions about the next steps for their investments. This aging population – sometimes referred to as the “silver tsunami” – may face key financial challenges in retirement, such as turning savings into income and managing market volatility.
In light of these challenges, an annuity may be one option to consider as you look to help protect savings and create retirement income. Here are several reasons an annuity can be an appealing part of a retirement plan.
Thinking about retirement?
No matter what life stage you’re at, it's always the right time to plan for retirement.
How to use an annuity as you plan for retirement
An annuity – a contract with an insurance company – can help provide retirement income and, depending on the type, may offer features designed to help reduce certain risks, such as market volatility. Here’s how an annuity can be used in retirement:
- Asset preservation: Some annuities may offer a fixed rate of return or features designed to help protect principal, which can be reassuring when retirees no longer have a regular paycheck. A fixed annuity, for example, provides a fixed rate of return that may help reduce exposure to market volatility compared with more volatile investment options. This can be particularly attractive to retirees who prioritize stability and protecting their capital.
- Predictable income stream: An annuity can provide a consistent and predictable source of income, which may help retirees cover essential living expenses. With an annuity, you may be able to create a personal pension in retirement.
- Longevity protection: By converting a portion of retirement savings into an annuity, retirees can help protect against the risk of outliving their assets. A lifetime income annuity can provide payments for as long as the retiree lives, offering peace of mind and financial security.
- Tax-deferred growth: Funds within a deferred annuity may grow tax-deferred, meaning interest earned is generally not taxed until it is withdrawn. This can be advantageous for retirees looking to maximize their investment growth.
- Supplementing other retirement income: Income from an annuity can complement other sources of retirement income such as Social Security, pensions and withdrawals from retirement accounts. Having a mix of income sources can help support overall financial stability in retirement.
- Simplified financial management: By providing a regular income stream or a fixed rate of return, annuities can simplify parts of financial management in retirement and may reduce the need for frequent investment decisions.
When considering an annuity, it’s important to evaluate your overall financial situation, retirement goals and other income sources. Consulting with a financial advisor can help you determine the most appropriate type of annuity or income structure for your needs.
Invest your way
Not working with us yet? Find a J.P. Morgan Advisor or explore ways to invest online.
