Retirement planning is often described as a journey, with each stage presenting new opportunities, challenges, and decisions. Along the way, people typically consider a variety of financial tools designed to help support their long-term goals, manage risk, and create greater confidence in the future.
Among those tools, annuities are often mentioned but not always well understood. While annuities have been part of retirement planning conversations for decades, many people are unfamiliar with how they work, the different types available, and the role they may play within a broader financial strategy.
Like any important journey, making informed decisions begins with understanding your options. Learning the basics is an important first step.
At its core, an annuity is a financial product designed to help address a variety of retirement planning goals. When an annuity is purchased, money is paid to an insurance company in exchange for specific benefits that may include growth opportunities, principal protection, guaranteed income, or a combination of these features.
Annuities are issued by insurance companies and are often discussed alongside life insurance. While the two products serve different purposes, both are designed to help households manage financial risks. Life insurance is generally intended to help protect loved ones from the financial impact of an untimely death. Annuities, on the other hand, are designed to help address a different concern: the possibility of living a long retirement and needing financial resources that last throughout those years.
Annuities can be purchased with either a lump-sum premium payment or a series of payments over time. The features, guarantees, and options available vary by product and are designed to address different retirement planning objectives.
Like any retirement planning tool, annuities are not one-size-fits-all solutions. Understanding how they work and the goals they are designed to address can help determine whether they may fit into an overall retirement strategy.
Annuities are used as a retirement planning tool because they can help address a variety of financial goals. While benefits vary by product, retirement savers are attracted to annuities because of their ability to provide the following benefits:
Annuities are designed to address specific financial concerns. While they may not be appropriate for every situation, there are several circumstances where an annuity may be worth considering as part of a broader retirement strategy.
Financial priorities and risk tolerance often change as retirement approaches. While growth may remain important, many people begin placing greater emphasis on preserving accumulated assets and creating a more predictable path toward retirement. Certain annuities may help support these objectives while continuing to provide growth opportunities with greater stability.
One of the biggest questions in retirement planning is how to create income that lasts. Some annuities can provide a reliable source of income that may help supplement Social Security, pensions, and other retirement assets.
Not everyone is comfortable with the ups and downs of the stock market. For those seeking greater stability and predictability, certain annuities can offer features designed to help protect assets while still providing opportunities for growth.
Many annuities are funded with assets already held in savings accounts, money market accounts, CDs, or other conservative vehicles. While funds needed for short-term expenses or emergency savings should generally remain readily accessible, assets earmarked for longer-term retirement goals may be candidates for an annuity. Depending on the product selected, an annuity may provide opportunities for additional growth, income, or protection while remaining aligned with a more conservative approach.
While annuities can help address a variety of retirement goals, different types of annuities are designed to meet different needs. One way to understand those differences is by looking at when income payments begin and how the annuity grows in value.
Immediate annuities are designed to begin providing income shortly after purchase. A Single Premium Immediate Annuity (SPIA) is a common example. These products are often used to convert a lump sum of assets into a predictable stream of income.
Example: After receiving a $200,000 inheritance, Jason decides to use a portion of those assets to purchase a SPIA. In exchange, he receives a predictable stream of income that helps supplement his retirement income.
Deferred annuities are designed to accumulate value over time before income payments begin. They are often used by people who are planning for future retirement needs and do not require immediate income.
Example: At age 55, Madison has ten years until retirement and wants to continue growing a portion of her retirement assets. Rather than taking income immediately, she purchases a deferred annuity designed to accumulate value during her remaining working years.
Deferred annuities generally fall into three broad categories:
Some commonly used annuity terms combine these categories. For example, a Multi-Year Guaranteed Annuity (MYGA) is a type of fixed deferred annuity that provides a guaranteed interest rate for a specified period.
Example: Parker’s five-year CD has reached maturity. Because he does not need the money immediately and wants a guaranteed rate of return, he decides to move a portion of those funds into a MYGA.
A Fixed Indexed Annuity (FIA) is a type of indexed deferred annuity that offers growth potential linked to a market index while helping protect against market losses.
Example: Sonya is concerned about stock market volatility but still wants growth potential beyond what is available in a traditional savings account. She chooses a FIA because it allows her to participate in market-linked growth opportunities while providing protection from market downturns.
Understanding these broad categories provides a foundation for evaluating the different annuity options available and the retirement goals they are designed to address.
Retirement planning often involves balancing multiple objectives, including growth, income, liquidity, and risk management. Because no single financial product is designed to address every need, many retirement strategies incorporate a variety of tools and asset types.
Annuities are often used to complement other retirement assets rather than replace them. Depending on the product selected, an annuity may help provide principal protection, tax-deferred growth, or a source of guaranteed income, while other assets continue to serve different purposes within an overall financial strategy.
For example, a retiree may use different financial tools for different purposes: Social Security and pension income to help cover day-to-day expenses, investment accounts for long-term growth potential, and an annuity to help address income needs or provide a measure of protection from market volatility.
Annuities are not one-size-fits-all solutions. The role an annuity may play within a retirement strategy depends on a variety of factors, including financial goals, time horizon, income needs, and comfort with risk. What may be appropriate for one situation may not be appropriate for another.
For those exploring annuity solutions, Axonic Insurance (AXI) offers a range of products designed to address different retirement objectives. From Multi-Year Guaranteed Annuities (MYGAs) focused on predictable growth to Fixed Indexed Annuities (FIAs) that combine growth potential with protection from market losses, AXI’s product portfolio is designed to help meet a variety of retirement planning needs. To learn more about AXI's annuity solutions, visit our product page or speak with a financial professional.
Every retirement journey is unique, but the goal is often the same: building a future with greater confidence and financial security. Whether the focus is growing assets, generating income, or protecting a portion of retirement savings from market volatility, understanding the available options is an important step. With the right strategy and the right tools, people can move forward with greater confidence and clarity as they prepare for the road ahead.
An immediate annuity begins providing income shortly after purchase. A deferred annuity allows assets to accumulate value over time before income payments begin.
A fixed annuity provides a guaranteed rate of interest for a specified period, backed by the claims-paying ability of the issuing insurance company. MYGAs are a common example of a fixed annuity.
A variable annuity allows assets to be allocated among market-based investment options, often called subaccounts. The value of the annuity can increase or decrease based on market performance.
Some annuities are designed to provide income for a specified period or for life. The availability and structure of income benefits vary by product.
It depends on the type of annuity. Fixed annuities generally provide guarantees that are not directly affected by market performance, while variable annuities are subject to market risk. Indexed annuities fall somewhere in between, offering growth potential linked to a market index while providing varying levels of protection from market losses.
In general, annuity earnings grow tax-deferred until withdrawn. Once distributions begin, the tax treatment depends on factors such as how the annuity was funded and the nature of the withdrawal or income payment.
Many annuities include a surrender charge period. During this time, taking out more than the amount permitted under the contract may result in a fee. These charges generally decrease over time and eventually expire, but the specific schedule varies by product.
*Tax-deferred means taxes are not paid on interest earned until the money is withdrawn.
This material is for informational or educational purposes only and not intended to provide legal, tax or investment advice.
Any examples are hypothetical and do not represent the results of any specific individual or account. Actual results will vary based on individual circumstances, tax laws, and other factors. Individual results will vary, and clients should consult a tax professional.
Annuities are insurance products, not certificates of deposit (CDs). They are not issued by a bank and are not insured by the FDIC or any other federal government agency.
Axonic Insurance refers to a group of affiliated legal entities organized under Axonic Insurance Holdings Inc. that collectively specialize in designing, distributing, and servicing annuity and other investment products for individuals and institutions worldwide. Axonic Insurance Services LLC (“Axonic”), an insurance producer licensed in all fifty states and the District of Columbia, #3003019286 in Arkansas, and #6013523 in California, acts as a business process outsourcer, including for the US-issued annuities underwritten by its non-affiliated carrier, AmFirst Insurance Company (NAIC #6025), an Oklahoma domiciled life insurance company with a home office in Oklahoma City, Oklahoma (“AmFirst”). AmFirst operates as AmFirst Life Insurance Company in California. AmFirst is licensed in 47 states, the District of Columbia, Puerto Rico, and the British Virgin Islands. Axonic Services LLC, a Puerto Rico limited liability company for profit, services the non US-issued annuities underwritten by its affiliated underwriter, Axonic Insurance Company SPC, a Class B(iii) insurer in the Cayman Islands licensed under the Cayman Islands Insurance Act, 2010 (as amended), as well as its non-affiliated carrier, AmFirst Life Insurance Company I.I., a corporation licensed as a Class 5 International Insurer and Segregated Assets Plan Company under Chapter 61 of the Insurance Code of Puerto Rico. Axonic has ownership interests in segregated accounts of ALIC, which provide reinsurance coverage to AmFirst and other third-party insurers.
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