When it comes to planning for retirement, one of the biggest concerns is making sure your money lasts as long as you do. That’s where annuities come in.
An annuity is a financial product offered by insurance companies that can help protect your money and provide income in retirement. It’s not just about growing your savings—it’s about giving yourself peace of mind, especially during unpredictable times.
Let’s break down the two main types of annuities and how they work.
Two Types of Annuities: Principal Protection & Income Protection
1. Principal Protection Annuities
These are designed to protect the money you put in—your principal. You won’t lose your original investment, even if the market goes down.
Some also offer:
- A guaranteed minimum return (like a fixed interest rate)
- Bonus interest
- Index-linked growth—so your money can grow when the market performs well, but never lose value when it drops
This gives you a way to participate in market growth without the risk of market loss.
2. Income Protection Annuities
These are focused on creating a guaranteed income stream. You’ll receive a minimum income for life, no matter how long you live—even if your account balance runs out.
Many also include:
- Growth potential tied to a market index
- Extra protection if you need long-term care—like doubling your income for a period of time if you can’t perform two daily living activities
This can be a game-changer for retirement income planning, especially as we live longer and healthcare costs rise.
What Else Can Annuities Do?
Annuities aren’t one-dimensional—they come with features and optional add-ons (called riders) that make them more flexible and personalized.
Here’s what they can offer:
- Tax-deferred growth – You don’t pay taxes on gains until you take money out.
- Death benefits – If you pass away early, your beneficiaries can receive the remaining balance—or even your full original investment, depending on the rider.
- Long-term care benefits – Some annuities include enhanced income if you become ill or impaired.
- Joint income – Payments can continue for your spouse if you pass away first.
- Principal protection riders – Guarantee your original investment back to your heirs, even if the account has dropped.
These features help cover more than just income—they help protect your whole retirement picture.
Types of Annuities
Here are the most common types you’ll see:
- Fixed Annuities – Pay a set interest rate, like a CD, but usually with better returns.
- Fixed Indexed Annuities – Growth is tied to a market index (like the S&P 500), but with a floor—so you won’t lose money in a downturn.
- Variable Annuities – Invested in the market, with the potential for higher returns and higher risk. Usually includes optional income or death benefit riders.
- Immediate Annuities – Start paying income right away.
- Deferred Annuities – Let your money grow now, and provide income later (usually at retirement).
Do Annuities Have Fees?
Fees vary depending on the type and features you choose. Some annuities (like fixed indexed annuities) can have no fees at all. Others, like variable annuities, may charge 1–3% annually for investment management, riders, and insurance features.
The key is knowing what you’re paying for—and whether it’s providing real value.
Where Do Annuities Fit in a Portfolio?
Annuities are especially helpful during times of market volatility.
They offer:
- Stability when stocks are bouncing up and down
- Predictable income that’s not tied to market performance
- Protection for a portion of your retirement savings
They aren’t meant to replace your entire portfolio—but they can add a layer of security, especially as you get closer to retirement.
Is An Annuity a Fit For Me?
Annuities can play a powerful role in a well-rounded retirement plan.
Whether you’re looking to protect your principal, lock in lifetime income, or add stability during uncertain times, the right annuity can bring confidence and clarity to your financial future.
As with any strategy, it’s important to understand your options and work with someone who can help you choose what’s right for your goals.
Wondering if an annuity might fit into your financial strategy.
Book a call to learn more.
