How Annuities Can Help You in Retirement

There is (without a doubt) an overwhelming number of options when it comes to investments for your retirement; one of those choices, which many of you likely haven’t heard of, is an annuity. Despite that being the case, annuities are one of the most commonly used products in retirement plans, so it’s best you get a grasp on them before you turn 60 or 70 years old (and become senile).

beach in retirement

Understanding that annuities have many different core functions and enhanced features, there are companies which can help you with personalized recommendations for your situation. Since annuities are one of the more confusing (albeit good) investment options available, it’s ALWAYS good to talk with a professional first that’s willing to give you a free consultation or is willing to educate you on the product and variables associated.

To give you a few examples of why you should always seek the knowledge from a professional, here are a few different annuities that are available on the market today:

Enhanced Annuity

Assuming you have some serious medical issues, this particular annuity may pay you up to 30% more than other (more traditional) annuities. Although common sense might suggest this: the annuity company is able to pay you more knowing that you likely won’t be around as long as somebody that’s healthier. There could certainly be downsides though, so always be sure to know what you’re getting into before you ever sign a contract.

Fixed Annuity

A fixed annuity usually refers to an annuity that has a fixed interest rate. You may be able to relate this idea best to that of a CD: you invest your money for a specified period of time (3, 5, 10 years, etc.) and the insurance company will pay you a fixed interest rate over that period. As with any other product, rates are incredibly low but fixed annuities often have better rates than CDs.

Investment-linked Annuities

In the US there are a few types of annuities that are linked to the performance of investments: indexed annuities and variable annuities. Depending on how it’s structured, the variable annuity can be one of the riskier types of annuities. With this particular annuity, your account value can increase substantially based on the performance of the market; however, it also remains completely susceptible to market risk and therefore the value can plummet quickly if the market takes a turn for the worse.

As you can see, annuities can be (and are) extremely confusing and complicated. Take that last example for instance: variable annuities can be designed so that they’re risky, however you can also get a variable annuity that has a provision where your gains get locked in AND where you’re guaranteed not to lose any of your initial principle (making it relatively safe).

These types of details and variance from one product to the next is the reason you should always meet with a trusted professional. Before you take that step, simply do some research online. There is an abundance of information available and you can even start by reading trough this article.

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About the Author

By , on Feb 6, 2013
Andy Tenton
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the publisher of

How to Become Rich e-Course

Budgeting 101


  1. Brian says:

    My only real problem with most annuities are the high fees. The idea behind them sounds great, but I feel like I could make my own annuity with less fees. But I do totally understand how the garunteed income sounds great for most people.

    • Andy says:

      Brian, fees really vary by the product so I wouldn’t say that all of them have high fees. Variable annuities generally have high fees, but indexed-annuities don’t have fees (sure, there is a cap on what you can make but that’s simply a trade off for no market risk).

      The only fee associated with most indexed annuities is an income rider (if you want that lifetime income/guaranteed growth). While they range from product to product, I just saw one a few nights ago with a .5% annual fee. Considering fees in mutual funds and fees for financial advisors in addition to that, .5% is really nothing at all. The flip side is that for that .5% annual fee you are getting a guaranteed 6.5% annual return on the income value…which is a pretty good tradeoff.

  2. Pauline says:

    I wouldn’t want an investment linked annuity, taking risks is fine while I am in my 30s but I would rather play it safe for retirement!

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