What Every Pre-Retiree Should Know
If you’ve ever wondered, “Are annuities a good investment?” — you’re not alone. Most people approaching retirement ask this question. Annuities can be confusing and even overwhelming, so today I am going to help you determine whether an annuity is the right option for you.
We recommend that you consult a qualified advisor, review your situation, and create a plan before making any investment or annuity decisions.
As a Certified Financial Planner™ who’s spent over 35 years advising retirees and pre-retirees, I understand that creating an effective retirement plan can be a complex process. I will do my best to simplify this for you.
Whether you’re age 50–65 and actively planning for retirement or already retired, understanding how annuities work can be a game-changer for your financial confidence and peace of mind.
Let’s dive in.
What Is an Annuity?
An annuity is a financial product offered by an insurance company. In simple terms, you pay a lump sum or a series of payments, and in return, the insurance company provides you with income, often guaranteed, for a set period or for life.
There are many types of annuities, but the most common for retirement income are:
- Immediate Annuities – You invest a lump sum and begin receiving income immediately.
- Deferred Income Annuities – You invest now and start receiving payments in the future.
- Fixed Indexed or Hybrid Annuities – These offer some growth potential tied to a market index (like the S&P 500), with downside protection.
- Variable Annuities – Your returns depend on the performance of investment sub-accounts and carry higher risk.
Each serves a different purpose, so deciding whether an annuity is a good investment depends on your specific financial picture and goals.
The Real Question: Do You Need or Want a Guaranteed Income Stream in Retirement?
If you’re like most of our clients—women and couples aged 50–65—your biggest concern isn’t “Will I beat the market?” It’s “Will I be okay financially for the rest of my life?”
The value of an annuity isn’t just in how it performs, it’s in what it provides: predictable, often guaranteed income that replaces your paycheck.
Imagine knowing your mortgage, groceries, and basic living expenses are covered every month for life. That’s the power of a well-planned annuity strategy.
And for many who purchase an annuity, the peace of mind that comes from having a guaranteed monthly income is priceless.
When Annuities Make Sense
Here’s when annuities are often a smart component of a retirement plan:
- You Want to Replace Your Paycheck
Once you retire, the paychecks stop, but the bills don’t. Annuities can serve as your private pension, providing a monthly income that doesn’t fluctuate with the stock market.
- You’re Concerned About Market Risk
If market volatility makes you nervous or worse, keeps you up at night, annuities can offer peace of mind with principal protection and predictable income.
- You Want Lifetime Income for Both Spouses
Joint life annuities can ensure that you or your spouse continues receiving income, even after one of you passes. This is especially important for women, who statistically live longer and may outlive their partners and their partner’s income.
- You Need to Satisfy Required Minimum Distributions (RMDs)
Some annuities work well in IRAs and qualified plans, especially for those who must begin taking RMDs. A properly structured annuity can integrate seamlessly into your retirement income plan.
When Annuities May Not Be the Best Fit
There is no one-size-fits-all financial solution, and this is especially true for annuities. Here are a few cases where they may not make sense:
You
- Have enough guaranteed income to cover your need-based expenses (housing, insurance, utilities, food, etc.)
- Need immediate liquidity or access to your principal.
- Lack sufficient retirement savings to fund both guaranteed income and growth.
- Have a high-risk tolerance and prefer market exposure.
- Haven’t created a comprehensive financial plan and are unsure of your income needs.
Starting with a clear retirement roadmap is a critical first step. A well-designed plan gives you clarity around how much income you’ll need, if any, what role annuities might play, and how to balance growth and guarantees.
Are Annuities Safe?
This is one of the most common questions I hear.
Annuities offered by reputable, highly rated insurance companies are generally considered safe for their intended purpose: income, growth, or protection.
Unlike stocks or mutual funds, they’re not designed for aggressive growth. But in exchange, they offer something many investments don’t, potential upside growth with protection.
For example, a fixed annuity offers a guaranteed interest rate and return of your principal. In contrast, a hybrid annuity offers upside potential tied to a market index while protecting against market losses. Some annuities offer riders that guarantee lifetime income.
If you’re someone who values knowing that your money is safe and your income is secure, an annuity may be precisely what you need to sleep better at night.
Why Do Some People Hate Annuities?
You may have read articles or watched videos calling annuities “a bad investment.” Often, these messages come from people who sell investment products and don’t offer annuities, or, worse, they lump all annuities together, ignoring their many variationsor your unique situation.
Here’s the truth: annuities are neither good nor bad. The real issue is whether they’re used correctly and integrated into a larger plan. When they are, they can be life-changing.
I’ve seen clients go from waking up anxious about the stock market to feeling calm and confident, spending their mornings hiking, golfing, or traveling because they know their guaranteed income covers their expenses.
The Role Annuities Play in Our Clients’ Retirement Plans
In our practice, we recommend a combination of retirement solutions.
Examples include:
- Social Security
- Corporate Pensions (if available)
- Guaranteed lifetime income via annuities
- Investment accounts for growth and to hedge against inflation
- Alternative sources, including real estate and/or business income (if applicable)
The annuity is not “all of the plan”; it’s a portion that creates certainty and stability.
A well-structured annuity allows our clients to invest the remainder of their portfolio with greater confidence, knowing that even if the market fluctuates, their basic living expenses are covered.
Our Personal Strategy
My husband and I have incorporated annuities into our retirement plan. While we both have significant retirement accounts and other investments, I sleep better knowing that we’ll always have a portion of our income guaranteed for both of our lives. And while I was initially the bigger fan of annuities, my husband now loves them.
The reason? Annuities, like corporate pensions, provide freedom to choose how we spend our time, rather than worrying about how we’ll fund our lifetime income.
Final Thoughts: Are Annuities a Good Investment?
Here’s my take after decades of experience:
If you value peace of mind, want to replace your paycheck, and crave a steady income stream in retirement, the right annuity can be one of the best financial decisions you’ll make.
If you’re still growing your wealth or don’t have clarity on your expenses and income needs, build your plan before investing in any investment or annuity product.
Annuities, like other assets, are simply a tool to help you create a financially secure life you love.
And for many of my clients, that plan and certainty changes everything.
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Disclosure
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