How an annuity can help you plan for retirement
By: Annuity Solutions & Advice Team
With a record number of retirees hitting 65 in 2025, there is a significant demographic of people reaching retirement age who have questions about the next steps for their investments. This aging population, often referred to as the “silver tsunami,” has several key financial challenges they will need to face in short order.
In light of these challenges, an annuity can be a potential option for this population as they seek to grow their wealth in retirement. Here are several reasons why an annuity can be an appealing investment for retirement:
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How to use an annuity as you plan for retirement
An annuity – which is a contract with an insurance company that can provide a steady income stream or serve as protection from loss of principal – can be an effective tool in retirement planning by providing a steady and reliable source of capital. Here’s how an annuity can be used in retirement:
- Asset preservation: Some annuities can provide a guaranteed rate of return or level of protection that gives investors comfort when they no longer have their employment wages in retirement. A fixed annuity, for example, provides a guaranteed rate of return that can help reduce investment risk compared with more volatile investment options. This can be a particularly attractive to retirees who prioritize stability and protecting their capital.
- Guaranteed income stream. An annuity can provide a consistent and predictable source of income, a valuable way for retirees to ensure that they have enough money to cover their essential living expenses. With an annuity, clients can create a personal pension for themselves in retirement.
- Longevity protection: By converting a portion of their retirement savings into an annuity, retirees can protect against the risk of outliving their assets. A lifetime income annuity guarantees payments for as long as the retiree lives, offering peace of mind and financial security.
- Tax-deferred growth: Funds within a deferred annuity grow tax deferred, meaning that the interest earned is generally not taxed until it is withdrawn.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. This type of diversification can enhance the overall financial stability of an investor in retirement.
- Simplified financial management: By providing a regular income stream or a fixed rate of return, annuities can simplify financial management in retirement, reducing the need for complex budgeting or investment decisions.
When considering an annuity, it is essential for retirees to evaluate their overall financial situation, retirement goals and other income sources. Consulting with a financial advisor can help determine the most appropriate type of annuity or income structure to ensure a secure and comfortable retirement.
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