June marks National Annuity Awareness Month, offering a timely opportunity for readers to take a closer look at their retirement planning strategies. In light of current economic uncertainties like market volatility and rising interest rates, many are seeking financial solutions that promise stability. Annuities, in particular, are gaining attention for their ability to offer predictable income streams in an unpredictable financial environment.

What Is an Annuity?

At its core, an annuity is a financial product where you pay an insurance company in exchange for regular income, either for a set period or for life. This structure allows individuals to ensure a steady cash flow during retirement, combating the fear of outliving their savings.

Why Consider an Annuity?

Annuities offer several appealing benefits, including the potential for lifetime income and legacy planning features such as death benefits. Additionally, they provide tax-deferred growth, offering a “triple tax benefit” where the principal, interest, and tax savings all earn interest. For those concerned about market volatility, certain types of annuities also offer market protection.

Are More People Choosing Annuities?

It's worth noting that annuity sales hit a record $432.4 billion in 2024, reflecting a 12% increase from 2023. While projections for 2025 are more moderate, annuities continue to play a valuable role in portfolio diversification, presenting themselves as a stable component amidst economic fluctuations.

What Are the Downsides of Annuities?

Of course, annuities come with their set of challenges, including high fees like sales charges, administrative fees, and investment management costs. Potential risks also involve rising interest rates, inflation, and insurer failure, although protections like state guaranty associations exist. Additionally, early withdrawal penalties and tax impacts—ordinary income tax and surrender charges—should also be considered.

Though not a one-size-fits-all solution, annuities can be a powerful tool within certain retirement strategies. It's important to discuss with a financial professional to see if annuities align with your retirement goals, ensuring a strategy that feels both personal and stable.