Protected Income in Retirement: How Annuities Can Help Your Money Last
One of the biggest worries in retirement is simple: “Will my money last as long as I do?” For many seniors and retirees, Social Security helps, but it may not be enough to cover everything. That is where annuities may help. An annuity can turn part of your savings into steady income you can count on for a set time — or even for the rest of your life. The Alliance for Lifetime Income guide explains that annuities are one of the few retirement income sources designed to help protect against outliving your savings.
3 Key Points
Annuities can provide protected income that may last for life.
Different annuities serve different needs, including safety, growth, income, or long-term care planning.
Annuities are not one-size-fits-all, so it is important to understand costs, access to your money, guarantees, and risks before buying.
What Is Protected Income?
Protected income is money you can rely on. According to the attached guide, the three main sources of income you generally cannot outlive are:
Social Security
A pension
An annuity
Other income, such as stock dividends, rental income, interest income, or investment withdrawals, may change over time. Those sources can go up or down. Protected income is different because it is designed to give you more certainty in retirement.
Think of it this way: you insure your home, your car, and your health. An annuity may help you insure part of your retirement income.
How an Annuity Works
An annuity is a contract with an insurance company. You can fund it with a lump sum or, in some cases, with multiple payments. Your money may grow tax-deferred until you withdraw it, and you may be able to turn that money into steady income later. FINRA also explains that annuities are often used in retirement planning to turn assets into a stream of income.
In simple terms:
You place money into an annuity.
The insurance company credits interest or growth based on the type of annuity.
You may later receive income payments.
Some annuities offer lifetime income options.
Why Seniors Consider Annuities
Many retirees do not want to gamble with every dollar they saved. They want part of their money to be safe, steady, and dependable.
Annuities may help with:
Covering monthly bills
Filling a gap between Social Security and expenses
Reducing fear of market drops
Creating income that lasts
Leaving a benefit to a beneficiary, depending on the contract
The attached guide gives an example of a retired couple who had a monthly income shortfall. By using part of their savings to purchase an annuity, they created additional monthly income to help cover basic expenses while keeping other assets available for wants and wishes.
Common Types of Annuities
Fixed Annuity
A fixed annuity may be a good fit for someone who wants predictable interest and does not want market ups and downs. The guide explains that fixed annuities provide a guaranteed interest rate for a set period, often 1 to 10 years.
Fixed Index Annuity
A fixed index annuity may help people who want some growth potential without directly investing in the stock market. These annuities often link interest crediting to an index, such as the S&P 500, while offering some level of protection against market losses. FINRA notes that indexed annuities can be complex, so it is important to understand how interest is credited, what limits apply, and what charges may exist.
Variable Annuity
A variable annuity gives more market exposure. That means there may be more growth potential, but also more risk. The attached guide explains that variable annuity values can rise or fall with market performance, and losses are possible.
Registered Index-Linked Annuity
A registered index-linked annuity, often called a RILA, may offer market-linked growth with some downside protection. But it can still involve risk. Investor.gov explains that some indexed annuities regulated as securities can expose investors to losses, especially if the index performs poorly or money is removed early.
Long-Term Care Annuity
Some annuities may include long-term care benefits. These may help pay for care needs such as assisted living, nursing home care, memory care, or help with daily activities, depending on the contract rules. The guide notes that long-term care benefits are sometimes available as optional features on certain fixed annuities.
You can also read more here: Learn how Social Security fits into your retirement income plan
Questions to Ask Before Buying an Annuity
Before choosing an annuity, ask:
When can I start income?
Will the income last for life?
Are there surrender charges?
Can I access my money if I need it?
What happens when I pass away?
Are there extra rider fees?
What guarantees are included?
What guarantees are optional?
The attached guide also reminds consumers to ask about costs, access to money, what happens at death, and when income can begin.
Important Reminder About Taxes and Guarantees
Annuities can offer tax-deferred growth, but withdrawals may be taxable. The IRS explains that many distributions from annuities or retirement plans before age 59½ may be subject to a 10% additional tax on the taxable portion, unless an exception applies.
Also, annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. They are not right for everyone. FINRA reminds consumers to understand fees, expenses, surrender charges, riders, and restrictions before buying an annuity.
Conclusion
Annuities are not magic. They are not for everyone. But for the right person, they may help create something many retirees want: steady income, more confidence, and less fear of running out of money.
The key is to understand how they work before making a decision.
If you are retired or getting close to retirement and wondering whether an annuity fits your plan, Senior Help and You can help you review your options in simple, clear language.
Call 520-252-5275 today for a free retirement income conversation.
We are here to help seniors and retirees make confident decisions.
3 Takeaways
Annuities may help turn part of your savings into steady protected income.
Different annuities have different risks, benefits, costs, and rules.
A careful review can help you decide whether an annuity fits your retirement plan.
Sources
Alliance for Lifetime Income, Understanding Protected Income: Your Guide to Annuity Solutions for a Secure Retirement, 2024.
FINRA, Annuities.
Investor.gov, Indexed Annuities.
IRS Publication 575, Pension and Annuity Income.
Authored by Albert Ferrin, RSSA®
Founder, Senior Help And You LLC
