Posted on August 18th, 2025

 

Planning for retirement often feels like juggling moving parts, and one tool that can help bring stability to the process is an annuity. At its base, an annuity is designed to provide reliable income so you don’t have to worry about outliving your savings.

 

 

Understanding Annuities

Amid all the discussions around retirement planning, you might find yourself asking: what is an annuity? At its center, an annuity is a financial product designed to provide a steady stream of income during retirement. Think of it as creating your own pension, where you contribute funds to an insurance company, and in return, receive guaranteed payments later. The goal is simple: make sure you don’t outlive your money.

Annuities have two key phases. The accumulation phase is when your contributions are invested and grow with interest. Then comes the distribution phase, when you start receiving payments that act as your income in retirement. This creates a financial safety net that can bring confidence in the years when paychecks stop but expenses continue.

When compared to other retirement tools, annuities stand out for their focus on guaranteed lifetime income. While pensions, 401(k)s, and IRAs all help build retirement savings, they don’t always guarantee predictable income. A 401(k) balance, for example, depends on market swings, and IRAs can rise or fall depending on investments. An annuity converts your savings into reliable payments that continue no matter how long you live.

 

How Annuities Work

A key part of learning about annuities lies in two terms: premiums and payouts. Premiums are the payments you make to the insurance provider—either as a lump sum or in smaller scheduled payments. These premiums are invested to grow during the accumulation phase. Later, during the distribution phase, payouts begin, providing you with income. Depending on the type of annuity, these payouts can last for a set number of years or for the rest of your life.

When learning how annuities function, it’s helpful to look at the two most common types: deferred annuities and immediate annuities.

• Deferred annuities let your money grow over time before paying out. They’re often chosen by people in their 40s or 50s who still have years before retirement. This option gives contributions time to build a larger base for income later.

• Immediate annuities begin paying almost right away. These are often used by retirees who want to quickly turn their savings into dependable income, offering stability that feels similar to receiving a paycheck.

Both types serve the same purpose: protecting you from running out of money in retirement. The difference lies in timing, flexibility, and how soon you want your income to begin.

 

Annuities in Retirement Planning

When thinking about how an annuity fits into your retirement plan, it helps to look at the benefits and considerations. Annuities not only provide a guaranteed income stream but also come with specific tax advantages and features that can add value.

Here are some key aspects to consider:

• Tax treatment: Earnings grow tax-deferred, meaning you don’t pay taxes until you start receiving payments. This can help you keep more money working for you over time.

• Withdrawal rules: Taking money out early, especially before age 59½, often comes with penalties. Planning ahead helps you avoid unnecessary costs.

• Death benefits: Many annuities allow you to leave value behind for your beneficiaries. This feature can make sure your money supports loved ones even if you don’t use all of it.

• Budgeting stability: Knowing how much income you’ll receive each month helps with predictable retirement planning.

Each of these features works together to provide not just income, but also peace of mind. Retirement planning isn’t only about building a large balance—it’s about making sure your money lasts. An annuity can be tailored to match your needs, offering a fixed payment for predictability or allowing for more growth potential if you prefer flexibility.

By weighing your priorities—such as guaranteed income, growth potential, or leaving a legacy—you can see how annuities might fit neatly into your overall strategy.

 

Types of Retirement Annuities

There isn’t just one kind of annuity, and getting to know the different types can help you decide which works best for your financial goals. Each comes with unique benefits that appeal to different risk levels and retirement needs.

• Fixed annuities: These provide guaranteed payouts that don’t change. They’re ideal for people who value stability and want predictable income, much like a permanent paycheck.

• Variable annuities: These tie your income to market performance through investment options. While they can offer higher payouts when markets do well, they also come with more risk.

• Indexed annuities: These strike a middle ground. Returns are linked to a market index, so you benefit when the market grows, but your money is protected from market losses.

Each type of annuity adds something different to a retirement plan. Fixed annuities build a reliable foundation, variable annuities offer growth potential, and indexed annuities provide a balance of protection with some room for growth.

Some retirees even combine different types to create a more balanced strategy. By mixing stability with opportunities for growth, you can shape an income plan that adapts to both your financial comfort level and long-term needs. The key takeaway is that annuities are not one-size-fits-all—they can be adjusted to fit your vision of retirement.

 

Evaluating Annuities for Your Retirement Strategy

Annuities can be powerful, but like any financial product, they come with considerations. Fees, risk tolerance, and payout options all affect how well an annuity supports your retirement goals.

Here’s what to review before deciding:

• Fees and charges: These may include surrender charges, management costs, or other expenses. Getting to know how fees affect your returns helps you avoid surprises.

• Income stability vs. growth potential: Fixed annuities lean toward stability, while variable ones lean toward growth. Indexed annuities combine both.

• Risk tolerance: Ask yourself how comfortable you are with income that might fluctuate. Your answer will show you toward the type of annuity that feels right.

• Time horizon: If you’re close to retirement, an immediate annuity might make sense. If you have more time, a deferred or indexed annuity may be more beneficial.

Closing the gap between what you want and what an annuity provides requires careful thought. By evaluating the balance of fees, flexibility, and income certainty, you can better determine which annuity type matches your goals. Partnering with a trusted advisor can also bring clarity, helping you choose the right balance of security and opportunity.

 

Related: Annuities Explained: How to Make the Most of Your Investment

 

Conclusion

Planning for retirement is more than saving money—it’s about turning those savings into lasting income that supports your lifestyle. Annuities bring confidence by providing reliable payments, protecting against market downturns, and helping guarantee you never run out of funds. They offer flexibility through different types and structures, making it easier to align with your financial goals and comfort level.

At Larry Fulmer Insurance Agency, we focus on helping you understand how annuities can strengthen your retirement strategy. Our role is to provide guidance that makes the options clear, so you can make decisions with confidence and clarity. Ready to take control of your retirement income? An annuity can provide stability, protection, and the peace of mind that your money will last as long as you do.

Don’t wait until it’s too late—start building the secure future you deserve today. Call now to learn how an indexed annuity can safeguard your savings while giving you the chance to grow with the market. Reach us at (972) 377-0924 or by email at [email protected]. We’re here to help you secure the future you’ve worked so hard for.