If you’re like most pre-retirees or retirees, you’ve probably asked yourself, “How do I create enough income to last the rest of my life?”

The last 35 years of advising wealthy clients have proven to me that the key to peace of mind in retirement isn’t just a number—it’s about having a predictable, guaranteed income. One of the most common ways to create it is through annuities, which can play a significant role in replacing your paycheck in retirement.

Today, we’ll explore the various types of annuities for retirement and how each may fit into your broader financial plan, enabling you to retire with clarity, confidence, and security.

Understanding Annuities: The Basics

An annuity is a contract between you and an insurance company. You invest a sum of money—either all at once (lump sum) or over time–and in return, you receive a stream of income in retirement. That income may begin immediately or later, and it can last for a set number of years or for the rest of your life.

The beauty of annuities? They can create a guaranteed income that lasts as long as you do. That’s especially important as we live longer and face increased uncertainty in the stock market and economy.

But not all annuities are created equally. Let’s break down the main types of annuities and who is best suited for them.

Different Types of Annuities

1. Immediate Annuities

What it is: You pay a lump sum and begin receiving payments immediately, typically within 30 days to one year.

Best for: Retirees who require immediate income and desire the security of a lifetime income.

While this is an option, the downside is that you lose access to your principal. For many people, this is a deal breaker, as they want the ability to tap into their principal investment if needed.

In addition, payments are fixed and don’t adjust for inflation.

2. Deferred Income Annuities (DIAs)

What it is: You invest today but delay receiving income until a future date, often five or ten years in the future.

Best for: Individuals planning for retirement income or seeking to supplement their Social Security or pension.

The longer you wait to begin payments, the more income you receive. This can be a game-changer if you’re 55 today and want to retire at 65.

Many clients love the guaranteed income, but the inability to tap into the principal can be a deal breaker for many.

3. Fixed Annuities

What it is: Offers a guaranteed interest rate for a specific period, like a CD, but typically with higher returns.

Best suited for: Conservative investors seeking predictable growth with minimal market risk.

Clients choose this option for the safety of principal, tax-deferred growth, and predictable returns. Fixed annuities help stabilize a portfolio during market volatility.

Tip: Make sure the issuing company has a high rating. You want stability from the insurance carrier behind your annuity.

4. Fixed Indexed Annuities (FIAs)

What it is: Tied to a stock market index (like the S&P 500). These annuities offer the potential for higher returns than a traditional fixed annuity—without the risk of market loss.

Best suited for: Pre-retirees seeking moderate growth potential and protection from market downturns.

This option allows you to participate in a portion of the market upside, but your principal is protected from losses. This is ideal for clients who can’t afford to take on stock market risk or prefer not to, but still seek growth potential.

Reality check: The returns are capped and may not fully reflect market gains, but you also avoid market losses, which is a trade-off many pre-retirees are willing to make.

Income Rider

Many offer an income rider, which is an excellent option for individuals wanting a guaranteed income. While some plans allow you to take principal, others have penalties or reduce the rollup or payout rate, so always check with a qualified advisor before making a final decision.

 5. Variable Annuities

What it is: Your money is invested in mutual fund-like subaccounts, so your returns vary with the market.

Best for: More aggressive investors with a higher risk tolerance and a longer time horizon.

What you need to know:

• These offer the highest upside potential and the most risk.
• Fees can be high, and returns are not guaranteed.
• Many include riders (for an extra cost) that provide lifetime income if your subaccounts lose value.

If you’re in your early 50s, have a solid retirement plan, and aren’t afraid of market volatility, a variable annuity with an income rider might be an option.

6. Qualified Longevity Annuity Contracts (QLACs)

What it is: A special type of deferred annuity funded with money from your IRA or retirement plan, allowing you to delay Required Minimum Distributions (RMDs) until as late as age 85.

This type of annuity can be tricky, so make sure to consult with a qualified advisor before selecting this option.

Best for: High-net-worth individuals with large retirement accounts who do not need the income from RMD, want to manage their taxable income, and ensure longevity protection.

Why it’s a strategic move: By delaying RMDs, you can lower your tax bill now and secure a guaranteed income later, perfect for longevity planning.

These contracts are contractually binding; therefore, always consult with a qualified advisor before finalizing this option.

Key Benefits of Annuities in Retirement

Regardless of the type, annuities offer some common benefits:

• Guaranteed income: Replaces your paycheck in retirement.
• Peace of mind: You won’t outlive your money.
• Tax-deferred growth: You only pay taxes when you withdraw money (assuming your investment is non-qualified).
• Protection from market loss (with fixed or indexed annuities).
• Customizable riders: Long-term care, income boosts, or death benefits.

When combined with other income sources, such as Social Security, pensions, and investment income, annuities can help you establish a financial foundation that supports the lifestyle you desire and mitigates the risk of outliving your money.

Questions to Ask Before Choosing an Annuity

• When do you want to start receiving income?
• Do you want income for life or a specific period?
• How much risk are you comfortable taking?
• Are you planning to leave a financial legacy?
• How will an annuity affect your taxes and RMDs?
• Does an annuity fit into your bigger picture financial plan? And, if so, how?

Every situation is unique. That’s why I always start with a personalized plan. A good advisor will consider your goals, assets, and comfort with risk. Once you have a game plan, you can then determine whether an annuity makes sense for you, and if it does, which type to purchase.

My Personal Take

If you’re within 10 years of retirement, now is the time to build your retirement income plan.

My husband and I purchased annuities to cover most of our spending plan. Why? Because even though I understand the market and have invested successfully for decades, I sleep better knowing that a portion of our income is guaranteed, regardless of what happens in the market.

And while my husband wasn’t initially sold on the idea, he now thinks they are great because of the guaranteed income. As I shared in my 30+ years of research, my happiest clients had guaranteed income. Most were from company pensions, which are a thing of the past. Annuities allow you to create a personal pension.

It’s not about chasing the highest return. It’s about designing a financial life where you have peace of mind and the freedom to spend your time how you choose.

Final Thoughts: Types of Annuities for Retirement

Annuities aren’t one-size-fits-all. But for many pre-retirees and retirees, they’re a crucial piece of the financial puzzle. They can help you shift from accumulating wealth to protecting it and living the life you’ve worked so hard to build.

Remember, this isn’t about products. It’s about your plan.

And when you have the right plan in place, you have a financially secure tomorrow and can worry less—and enjoy your life more.

Disclosure

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This information is for educational purposes only. It is not intended to replace the advice of any advisor or specialist, nor to provide investment, financial, tax, retirement, planning, or healthcare advice.

Always consult with a qualified professional before making any financial decisions or changes.