Financial experts recommend setting your asset allocation and sticking to it until your life circumstances change.

You should typically split your investments among equities and fixed-income investments and perhaps a pinch of commodities.

For example, you might decide on 49% in stocks, 49% in fixed income and 2% in commodities. If stocks have a big run-up and become, say, 60% of your portfolio, you should consider rebalancing to get back to your original allocation.

What's the best asset allocation for you is highly individual and depends on many factors, including age. Most people become more conservative as they enter retirement and cut back on stocks and increase fixed-income assets, which include bonds and bank certificates of deposit (CDs).

But they aren't the only choices. As the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and lifetime income annuities, I am a nationally recognized annuity expert and know all about those choices.

Fixed-rate deferred annuities — especially multi-year guarantee annuities, or MYGAs — provide safe, steady interest but without most of the drawbacks of bonds or bond funds. They also usually pay higher rates than CDs and are tax-advantaged.

These annuities can thus substitute for some of the bonds or CDs in your fixed-income allocation. But you need to be aware of liquidity and taxation matters before committing.

MYGAs avoid bond-market volatility

Issued by insurance companies in exchange for a single premium deposit, MYGAs share some similarities with bonds and even more with CDs. Like CDs, they earn a guaranteed rate of interest for a set period, usually two to 10 years.

But there are some key differences between bonds and fixed annuities, which have more guarantees and lower risk.

First, you can lose money in bonds. Both CDs and MYGAs guarantee interest and principal. But the market value of a bond fluctuates with changes in interest rates. If rates go up and you sell a bond prior to maturity, it will be worth less than its original cost. With an individual bond, you can avoid this problem by holding it to maturity.

Bond-fund investors don't have that option. If rates spike up after you buy a bond fund, the value will decline. Especially with a long-term bond fund, it may take many years to recover your full principal, if ever.

Second, owners of individual bonds (except Treasuries and U.S. agency bonds) also face default risk. A company or municipality may run into financial problems and fail to make timely interest or principal payments. A default means you could lose part or all of your investment.

In contrast, an annuity is guaranteed by the issuing insurance company. There is no federal deposit insurance, so buyers need to choose carefully. Insurers with strong financial ratings are considered very safe. Rating agencies like AM Best provide a letter grade to insurers.

With fixed annuities, the insurance company bears the underlying investment risk, shielding annuity owners from both bond market volatility and default risk.

Most corporate, municipal and government bonds pay out interest every six months. Normally, there's no ability to reinvest interest so that it can grow and compound at a high rate.

Bond funds let you reinvest your dividends automatically, but the price per share varies as interest rates change. You may have a gain or loss on reinvested dividends when you cash in the fund shares.

More advantages

MYGAs let you compound interest earnings. Reinvested interest gets the same rate as the base annuity, so the yield is guaranteed. Depending on the annuity, owners who need income can usually choose to receive interest earnings monthly, quarterly or annually.

Interest from corporate bonds and Treasuries is taxable in the year it's received. Annuities in nonqualified accounts (not in an IRA, a 401(k) or a similar plan) are tax-deferred.

All interest earnings left inside the annuity grow and compound tax-deferred until withdrawn, a significant tax-planning benefit. You can wait until retirement, when your tax bracket is likely to be lower, to start receiving payments. Without taxes taking a cut, your money compounds faster.

Many corporate and municipal bonds are callable. When rates are high, it may look like you nailed down a great deal. However, a few years later, when rates are lower, the issuer may call the bond back, and you'll have to reinvest the proceeds at a lower rate.

Fixed-rate annuities, like CDs, can't be called. The interest rate is set for the duration of the guarantee period.

Annuities also offer the ability to create a guaranteed lifetime income stream via annuitization. It's the only financial product that offers this option.

Liquidity and taxes

MYGAs have less unpenalized liquidity than bonds and bond funds. You can always cash them in, but you'll pay a penalty for early surrender. Second, interest earnings withdrawn from nonqualified annuities before age 59½, with a few exceptions, are subject to a 10% IRS penalty, plus ordinary income tax.

By the way, MYGAs can work very well as a fixed-income allocation in IRAs, providing "ballast" that counteracts the swings of the stock market while earning a high guaranteed rate of interest.

Because they have less liquidity than bonds, you probably wouldn't want to put all of your fixed-income investments in MYGAs. Among other things, it might limit your ability to rebalance.

But there is some liquidity. Many fixed-rate annuities let you withdraw up to 10% a year penalty-free. They're thus usually more liquid than CDs, which have stiff penalties for any early withdrawals.

Furthermore, you can stagger multiple MYGAs with different terms so that you'll have new ones coming up for renewal every year or two.

Not for everyone but maybe for you

MYGAs aren't right for everyone, but many people can benefit from their unique features. They provide steady, reliable interest that you can usually receive monthly, quarterly, semiannually or annually if you need the income. Or you can let interest accumulate in the annuity and grow tax-deferred.

MYGAs can also work very well in both IRAs and Roth IRAs.

There's nothing wrong with bonds and CDs. But take a look at MYGAs. One or more may be a good fit for you.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

Related Content

• Are You Retiring Soon and Need Income? An Immediate Annuity May Sound Boring, But Hear Me Out
• Too Scared to Dive Into a Fixed-Rate Annuity? Interest Rates Make It Worth Dipping Your Toe In
• Are Annuities Safe?
• What are Annuities? The Different Types and How They Work
• Income and Life Expectancy Not Adding Up? An Annuity Could Solve the Equation

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In the early 1980s, the 30-year Treasury yield topped 15%. Bond traders who had the foresight to lock in those coupons made the trade of a lifetime.

While everyone else chased the dot-com boom a decade later, those traders didn't need the market to cooperate. Their bonds just kept paying.

So, when the stock market went essentially nowhere from 2000 to 2013 (a flat market), many retirees who were in the market, focused on growth, struggled to maintain their lifestyle, while those who bought those bonds were able to sail through.

They didn't win because they predicted the future, but because they recognized a good rate when they saw one and acted on it.

That same logic applies to annuities today. But it didn't always.

Why I couldn't stand them (around 2015)

When I entered the financial planning industry over a decade ago, the 10-year Treasury was hovering around 2%. That's one of the benchmarks that heavily influences what insurance companies can offer in lifetime income payouts. And at 2%, the payouts were, frankly, uninspiring.

For example, I remember seeing payout rates around 4% to 5%. With inflation risk and the time needed to feel like you'd get your money back at a reasonable rate, it didn't make sense to me.

It was difficult to rationalize putting a client's money into a product that generated negligible income when other strategies could do more with less restriction (see my article 10 Ways to Generate Income in Retirement).

The math, in my opinion, didn't work. So I avoided suggesting lifetime income for years.

What changed

Today, the 10-year Treasury sits around 4.5%, which is more than double where it was a decade ago. That shift isn't cosmetic ... It's structural. The underlying rates that support lifetime income payouts have fundamentally changed what annuities can offer.

Higher rates mean higher payout factors. A product that once generated a modest income stream from a given deposit now generates a meaningfully better one. For pre-retirees concerned about outliving their money, that changes the entire conversation.

Today, I'm seeing payouts around 7% (some more, and some less). Rates are obviously subject to change, but that seems like a good deal.

This isn't about being bullish on annuities. It's about recognizing that the tool has become more effective in today's rate environment, much like those bond traders recognized a historically favorable rate and acted accordingly.

A product that finally grew up

Beyond rates, the annuity itself has evolved. The early versions of lifetime income products were clunky. High fees, restrictive surrender schedules, limited flexibility and opaque terms made them difficult to recommend.

That's no longer the case. Modern innovations like guaranteed lifetime withdrawal benefit (GLWB) riders, lower internal costs, index-linked crediting strategies and more have made today's annuities a fundamentally different product category than what existed even 10 years ago.

The industry matured, and the products improved with it.

Not all annuities are the same

One of the biggest misconceptions is that all annuities work the same way. They don't.

Here's a quick breakdown of some that are available today:

Variable annuities seem to be the poster child of what people believe an annuity is. They have higher fees, limited options and so on. Yes, they have "more upside potential," but they also have downside risk.

The fees can put a drag on the performance every year. This is where many of the horror stories are found, in my experience.

Fixed annuities offer a guaranteed interest rate for a set period, kind of like a CD. When it matures, you get your money back plus interest. This is probably the simplest annuity.

Fixed-indexed annuities offer upside potential with downside protection. Some are designed more for cash growth as a bond fund alternative, while others offer better lifetime payouts. It just depends on what you want.

Immediate annuities (SPIAs) convert a lump sum into income payments that start right away, often used for pensionlike income.

Each serves a different purpose. And none of them is universally right or wrong.

It's just a tool

Let me ask you a question: How do you feel about hammers? Probably indifferent. You like them when you need one, and you only hate them when you use one wrong, like when you miss the nail and hit your thumb.

Annuities are no different. The people who hate them usually had a bad experience with the wrong type, at the wrong time, for the wrong reason.

The people who love them sometimes overlook the tradeoffs. Both sides would benefit from a more neutral starting point.

That's exactly why I wrote The DIY Annuity Guide. I wanted to help people move past the love-it-or-hate-it reflex and figure out whether the tool actually fits their situation.

The rate environment has changed. The products have changed. Give yourself permission to check your assumptions and explore whether an annuity belongs in your plan or not.

Either answer is a good one, as long as it's informed.

Related Content

• What are Annuities? The Different Types and How They Work
• Is an Annuity Your Missing Retirement Piece?
• Five Annuity Mistakes to Avoid
• The Bear Market Protocol: 3 Strategies to Consider in a Down Market
• Retirees' Anti-Bucket List: 10 Experiences You Don't Want

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The financial professionals who contribute to Kiplinger's Adviser Intel are always here to make sure you have the information you need to make critical decisions about your retirement planning, estate planning and tax planning.

Annuities are a regular topic. Because of their complexity, they're often misunderstood.

This quiz is designed to test what you've learned about annuities. Let's see what you know! (And don't worry if you miss an answer: You can follow the links below the quiz to brush up on your knowledge.)

Please note that this quiz has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or financial advice.

READ MORE

• The Truth About Annuities: The Question Isn't 'Are They Good or Bad?' It's 'Are They Appropriate for You?'
• What are Annuities? The Different Types and How They Work
• Annuities: Do You Need Guaranteed Income In Retirement?
• The Key to Choosing the Right Annuity: Do Your Homework
• Why So Many Experts Consider Annuities a Win for Retirees

Annuities are one of the most polarizing tools in personal finance. Some advisers swear by them, while others tell clients to avoid them entirely.

That divide raises a question: Are annuities inherently flawed, or simply misunderstood?

The truth sits somewhere in the middle.

Annuities are complex products with real costs and real limitations, but they also serve legitimate purposes for certain investors. Understanding how they work — including the parts that often go undiscussed at the point of sale — can help investors make more informed decisions.

Main types of annuities

Not all annuities are created equal. Lumping them together is one of the main reasons they're often misunderstood.

Fixed annuities offer a guaranteed interest rate over a set period, similar to a CD but often with higher yields. The main tradeoff is liquidity: Surrender periods typically last several years with meaningful early-withdrawal penalties, and the guarantee is backed by an insurance company rather than FDIC insurance.

Fixed index annuities (FIAs) earn interest based on the performance of market indexes, with downside protection on the index credit. Gains are typically capped or limited by participation rates, and the insurer can usually adjust those terms over the life of the contract. FIAs often include optional riders for income guarantees or enhanced death benefits, though these features come with additional costs.

Income annuities are designed to provide a steady stream of income, often for life. They can function like a personal pension, helping retirees address longevity risk. The main tradeoff is irreversibility: Once converted, the lump sum is generally no longer accessible.

Variable annuities allow investors to allocate funds into market subaccounts, offering higher growth potential alongside greater risk. They often include optional income or death-benefit riders, but combined annual costs can be substantial and create a meaningful drag on returns.

Each type serves a different purpose. The key is aligning the product with the investor's goals, time horizon and tolerance for risk.

How to evaluate annuities

The most important question isn't, "Is this good or bad?" but, "Is this appropriate for my situation, and have I understood the full cost?"

Risk tolerance is a starting point. Investors who are uncomfortable with market volatility might value the guarantees annuities provide, while those focused on maximum growth might find them less compelling. Income needs matter too: For investors who want predictable, lifelong income in retirement, an income annuity can play a valuable role.

Liquidity, fees, and tax treatment all deserve attention. Most deferred annuities lock up money for years with steep early-withdrawal penalties. Gains are typically taxed as ordinary income rather than at capital gains rates, and heirs don't receive a step-up in basis. Placing an annuity inside an IRA also doesn't add tax deferral that isn't already there.

It's also worth comparing annuities with alternatives. A bond ladder, dividend portfolio or systematic withdrawal plan can sometimes achieve similar goals at lower cost. Because annuities are only as strong as the insurance company behind them, financial ratings and state guaranty coverage are worth checking.

Conflicts of interest in advice

Investors should be cautious of absolute positions on either side. "Never buy an annuity" and "you need this annuity" both deserve skepticism.

Advisory firms compensated through assets under management (AUM) charge ongoing fees on the assets they directly manage. Money moved into an annuity typically leaves that fee base, creating an incentive to keep assets in the portfolio even when an annuity might be appropriate.

On the other side, many annuities pay commissions to the adviser or agent who sells them, often paid upfront. This is one reason surrender charges exist — the insurer needs years of contract retention to recoup the commission.

An upfront commission creates a more direct and immediate incentive than an ongoing fee, and it's often less visible to the client because it isn't billed separately.

Neither conflict is automatically disqualifying, but they aren't equivalent in size or structure. Transparency about how the person giving the advice is compensated — and what they would and wouldn't earn under different recommendations — matters more than any general claim about the product category.

The right question isn't whether annuities are universally good or bad, it's whether a specific strategy fits a specific investor.

A balanced perspective

Annuities aren't a silver bullet, and they're not inherently flawed. They're tools that can serve a purpose when used appropriately and at a fair cost.

For some investors, they provide stability and income that's difficult to replicate through other means. For others, the costs and illiquidity make them unnecessary. The key is understanding what role, if any, they should play within a broader financial plan.

Taking the time to evaluate options, ask the right questions and seek transparent advice can make all the difference in determining whether an annuity belongs in your strategy.

Related Content

• What are Annuities? The Different Types and How They Work
• Annuities: Do You Need Guaranteed Income In Retirement?
• The Key to Choosing the Right Annuity: Do Your Homework
• Why So Many Experts Consider Annuities a Win for Retirees
• Confused by Annuities? Making Sense of the Different Types

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Planning for your retirement income should start years before you retire.

But many folks don't, and when they finally start thinking about how they are going to replace their paycheck, retirement is imminent.

Additionally, some people have to retire early because of a layoff or illness.

Fortunately, there's a good solution for procrastinators: An immediate annuity. While not the right answer for everyone, it can be invaluable in closing an income shortfall.

It converts your money into a stream of income that can be guaranteed for your lifetime and, optionally, that of your spouse, too.

You can create your own private pension and can have monthly payments begin as soon as one month after policy issuance, but no later than one year.

Issued by a life insurance company, the time-tested product is also called a single-premium immediate annuity (SPIA) or an immediate income annuity.

High guaranteed income

You can get more income from an immediate annuity than from almost any other vehicle. That's largely because each annuity payment includes both nontaxable return of principal and taxable interest.

This assumes the annuity is "nonqualified" — not within an IRA or 401(k). It's a bit like the opposite of a mortgage, where you're paying both principal and interest.

An immediate annuity can also work well in an IRA, too. However, all payments from a tax-qualified immediate annuity will count as taxable income, unless it's in a Roth IRA.

You can fund an immediate annuity using almost any source:

• The proceeds from a maturing bank certificate of deposit (CD)
• A savings or money market account
• Selling stocks, bonds, real estate or mutual funds
• Transferring money from a retirement plan account like an IRA or 401(k)

You generally fund an immediate annuity all at once with a "lump sum" or "single premium."

All annuities come with a mandated "free-look period," typically 20 to 30 days, depending on the state of issue. During this period, you can change your mind and return the policy for a full refund.

After the expiration of the free-look period, you are locked into the annuity's terms. In other words, you can't cancel the policy midterm, surrendering it for a lump sum of remaining unused principal.

Tailored options

The most straightforward immediate annuity is the single-life variety. It pays only while the annuitant (the person designated to receive payments) is still alive.

This type offers the highest income because the insurance company doesn't have to return any unused premium. The people who die earlier than average subsidize those who live longer than average.

If you're not concerned with leaving anything to your heirs, this option may be best.

With a joint life immediate annuity, payments continue as long as either of the two annuitants is alive.

If one person dies, the survivor continues to receive income, which may be the same amount (100% joint survivor) or a reduced amount (such as 50% or 75%).

Because payments are guaranteed for two lives rather than one, the income amount is lower than that of a single-life annuity, all other factors being equal.

The "life with period certain" option means the annuity will pay throughout the annuitant's life and also continue making payments to a beneficiary.

If you die before the end of the "period certain" (such as 15 years), your beneficiary will get payments for the remaining portion of the specified term (usually five to 20 years).

If you live past the period-certain term, payments will stop at your death.

An "installment refund" immediate annuity also protects your beneficiary.

Suppose you bought a lifetime annuity but passed away a few years later, before you received payments equivalent to the premium you paid. With this option, your beneficiary will continue receiving regular payments until the difference has been made up.

So, if you deposited $200,000 into an immediate annuity and received $50,000 in payments, your beneficiary would continue to receive $150,000 more in installments.

The "cash refund" option is similar, but the beneficiary would receive the amount due as a lump sum.

How much does one pay now?

Here are a couple of scenarios.

Maria, single and 65, deposits $250,000 into an immediate annuity. Since she has no children or others she needs to protect, she chooses a single-life nonqualified SPIA.

She'll receive $1,590 per month, including $549 of taxable interest and $1,041 of nontaxable return of principal. If she lives to age 85, the payments will become fully taxable then.

Ted and Doris, a married couple, are both 70. They also place $250,000 in an SPIA. They choose a joint life annuity.

They'll get $1,566 per month ($554 taxable, $1,012 tax-exempt) as long as one of them is alive. After 247 months, if either Ted or Doris is living, the payments will become fully taxable.

Lifetime income equals peace of mind

Because immediate annuities are typically guaranteed to pay the same level of income for the rest of your life, they offer protection against the worrying possibility that you'll outlive your savings.

Income annuities are the opposite of life insurance: They protect buyers from the financial risk of living a very long life.

They're a great option if you're concerned about replacing your income during retirement and want to add certainty to your financial future. Research shows that people with an adequate guaranteed income in retirement are happier and less anxious.

You won't get rich with an immediate annuity. They're designed to reduce risk and stress with guaranteed lifetime income.

While you might make more money in the long term by investing in stocks, the two key words here are "might" and "long term." If you can hold on to your stocks for many years, you're very likely to get a good return.

However, when you're older, your time frame grows shorter.

Furthermore, stocks are volatile. If you're forced to sell equities to raise money for income when the market is down, especially for an extended period, your portfolio can take a big hit that it might not ever fully recover from.

It's almost forgotten now, but during the decade ending in 2009, stocks fell by an average of about 1.0% a year.

Stocks can be exciting; an income annuity is boring and dependable. It's that dependability that makes it an excellent instrument for retirement planning.

Another argument for annuities is that they let you be a bit more adventurous with the remainder of your savings. When you have your basic income needs covered by an annuity and Social Security, you can afford to put less money in bonds or CDs and take on a bit more risk with stocks because you're not as reliant on them.

Inflation protection — but at a cost

Standard immediate annuities don't protect against inflation. You can, however, choose an inflation-protection rider that will boost payments by a fixed percentage each year, typically 1% to 3%.

However, your initial payments will be significantly lower. At current rates, a 3% annual boost might reduce your starting payment by 20% to 30% compared to a level annuity.

For most people, this feature isn't worth the cost, I believe.

However, if you're in great health and are buying an annuity at a relatively young age, you might consider this option. You'll get less now, but if you receive payments long enough, you can more than make up for the lower initial payments.

Immediate annuities aren't right for everyone. If you don't need the income soon, you should consider a deferred annuity that will give you greater tax deferral longer.

Interestingly, the immediate income annuity is the only type categorized as an immediate annuity.

All other types are considered deferred annuities. They include deferred income annuities, which work the same way but defer payment for more than a year. Other deferred annuities include CD-like fixed-rate annuities (multi-year guarantee annuities), variable annuities and fixed indexed annuities.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

Related Content

• What are Annuities? The Different Types and How They Work
• Annuity Definition and 17 Terms You Need to Know
• Is An Annuity Your Missing Retirement Piece?
• Income and Life Expectancy Not Adding Up? An Annuity Could Solve the Equation
• Are Annuities Safe?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor's note: This is the final article in a five-part series about all-asset retirement planning that covers such topics as using lifetime annuities and housing wealth, making the most of tax benefits, and managing investment portfolio risk. See below for links to the first four articles.

In writing this series, we saved the topic of managing investment risks in a retirement plan for last. Not because it's either least or most important, but rather, it's an area where things could get complicated, particularly if it got into security selection or hedging strategies that go beyond our retiree's — and even our — expertise.

The reality is we have reduced the investment risk challenge through all-asset planning even before we get to this point.

Market volatility

Let me give you some context and background. Just as we did in the article Treat Home Equity Like Your Other Retirement Investments, we measure how investment markets perform by using the historical performance of benchmark portfolios over the past 30 years. No measure can predict the future, so we're comfortable with historical.

During the past 30 years, the S&P 500 index has twice dropped more than 20% for the entire year. So, with, say, $1 million in the market invested in an index fund of S&P 500 stocks, that would be a more than $200,000 reduction in market value in a single 12-month period.

Now, we know stocks recover, but if you were newly retired or late in retirement, this would be very upsetting and might cause you or your adviser to pull back on stocks — and lose the opportunity to regain that market value.

This is particularly an issue if you're liquidating a portion of your portfolio each year to fund, for instance, withdrawals/distributions (RMDs) from your IRA account.

The graphs below show the volatility of the S&P 500 using compound annual growth rates for five- and 20-year periods ending in the calendar year indicated.

Note in particular how the returns tend to stabilize as the holding period lengthens. The key appears to be to "stay the course," even in the face of adverse short-term performance.

But just as important is the understanding of how market performance could drive your plan's results.

How an all-asset plan already reduces investment risk

Let's see how all-asset planning has already reduced this risk — and made it more manageable. The first step in our planning is to combine the S&P 500 portfolio with a fixed income bond portfolio to create a Balanced Portfolio used in the rollover IRA account.

There is no return or tax reason to keep these investments separate for a rollover IRA account, and it also has the advantage of reporting a blended return. These graphs show the blended returns for those same five- and 20-year periods.

While reducing the risk over the long term by allocating to a fixed income portfolio, there is still stock market risk.

Steps to manage the investment risk

Despite the lowering of risk with a Balanced Portfolio, your plan is impacted by the stock market returns, and you may want that risk reduced.

Here are some preliminary steps already in place in an all-asset plan and covered in our first four articles of this series.

• Include housing wealth in planning. By taking a portion of income in a HECM (home equity conversion mortgage) drawdown, you're reducing IRA withdrawals. At the same time, you're building up liquid savings from, say, the HECM line of credit.
• Include lifetime annuities. While taking care of longevity risk through a SPIA (single premium immediate annuity) and a QLAC (qualified longevity annuity contract), you're reducing IRA withdrawals and, at the same time, reducing investment risk. These annuities provide fixed payments and are backed by highly rated insurance companies.
• Reduce income taxes. As described in our fourth article in this series, The 9% Solution, these first two steps in our example are reducing income taxes by as much as 50% in the first year.
• Use high-dividend portfolio for personal savings. If you're including personal savings in your plan, using this portfolio to increase cash flow from higher dividends also benefits from lower volatility and lower tax rates on dividends.

How much risk is left?

A lot of the work has already been done. For our sample investor ($1 million each in a rollover IRA, personal savings and the value of the home), about $420,000, or 14% of total net worth, is in an S&P 500 index and subject to liquidation to cover withdrawals. (If no personal savings, then it represents 21% of net worth.)

Here are two pie charts that show the allocation of all sources of income, and then focuses on those that are "safe" and not dependent on stock market performance.

The charts show that for our sample investor, a 67-year-old man, 76% of the income is not based on stock market performance.

Managing risks through plan adjustments

Whatever the protections from other assets, how do we deal with any residual risk? First, here's what we don't do in our planning:

• We don't use the HECM line of credit as a planned backstop for the stock market volatility. We have earmarked that for long-term care and unplanned expenses.
• We don't accelerate the income under the QLAC — that's already part of the planned income.
• We don't build in hedges to protect the portfolio.

What we do is look at two time frames:

• The initial five to ten years of the plan when a sharp drop in the market could reduce your retirement savings and upset your long-term plans. That's called a sequence of returns risk.
• A period of long-term underperformance where you literally might not have funds to cover the planned-for IRA withdrawals.

For the first time frame, we suggest thinking about allocating a portion to a money market fund. Our current model suggests an allocation into a money market fund of about two to three times the average IRA withdrawal during this initial five- or ten-year period.

This will be sufficient if we make withdrawals from the fund in adverse markets over the initial period.

Based on our early tests with historical performance, it pays for itself and, in particular, addresses the sequence of returns risk.

For the second long-term underperformance, we suggest you consider updating your plan and see how it works with an allocation of the reserve income to current income needs. This action may cut the amount you planned on for long-term care or to pay down your HECM loan to create a larger legacy. You'll be the judge of these options.

While the elements of the all-asset plan are correct, the allocations among asset classes should be set to meet your objectives.

If you have a chronic illness, you might skip the lifetime annuity or at least elect beneficiary protection. And if you have a favorite investment opportunity beyond our planning, then exclude it from your retirement plan and possibly accept a lower income or legacy.

About the recent news regarding inflation

With the announcement last week that inflation had jumped to 3.8% in April, we thought it necessary to address the inflation risk as one that needs management.

To put it in perspective, over the 30-year period ending in December 2025, there have been 11 five-year periods where inflation exceeded a compound average of 2.5%.

One straightforward approach would be to increase the assumed inflation rate built into the plan from 2.0% to 2.5%.

With this change, our sample investor (a man age 67) with $2 million in retirement savings and $1 million in the value of his house would see starting income drop from $131,000 to $124,000.

Now, what to do about short-term inflation jumps like the current 3.8%? You can accept the inflationary adjustments as they occur. Or, to avoid any income reduction, draw on, say, the HECM line of credit or other sources of savings.

Alternatively, you could set aside a slightly larger amount in the money market fund designed for stock market volatility and draw on it when needed to deliver the higher income.

Notably, since the most recent five-year period had a compound average of nearly 4.5%, it's smart to keep an eye on inflation.

Why now?

For decades, retirement planning has focused almost entirely on investment portfolios. The implicit assumption is that a well-diversified portfolio — managed prudently — can solve every retirement challenge.

Maybe it used to be true, but that assumption no longer holds. As suggested above, the construction of an all-asset plan can reduce the risks and the impact of adverse effects of the stock market.

Just remember, the all-asset plan is delivering the highest levels of income and liquid savings. It also has the lowest early tax rates and market risk. To find out for yourself, you can order a complimentary plan.

The other articles in this series

• It's Time to Redefine Retirement for Retirees With $500,000 to $5 Million
• Unlock Housing Wealth and Tax Benefits by Adding Lifetime Annuities to Your Retirement Plan
• Does Your Retirement Plan Ignore Half of Your Net Worth?
• The 9% Solution: An Expert Guide to Retirement Tax Breaks That Could Cut Your Tax Rate Nearly in Half

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For the fourth year, we're pleased to present the winners of our annual Readers' Choice Awards. In a survey we conducted on Kiplinger.com in January and February, more than 4,200 readers rated the financial products and services they use in 13 categories, from credit cards and banks to brokers, wealth managers and annuity providers. The results here offer valuable insight into the everyday experiences that Kiplinger readers have with their financial providers.

Respondents made their judgments on such criteria as their interactions with customer service, the likelihood they would recommend the product or service to others, and their overall satisfaction with it. They also had the option to leave comments about their providers, and we have shared some of them here (remarks may be lightly edited for length and clarity).

For each category, we've listed an overall winner that earned the highest total score as well as other providers that earned above-average ratings for the various criteria that readers assessed. Our thanks to all of you who participated in the survey.

Kiplinger Readers' Choice Awards: Annuity Providers

Annuities are contracts that allow you to pay an amount up front or over time in exchange for the opportunity to create a steady stream of income in retirement.

Often used as a way to hedge retirement portfolios against future market risks, the features and costs can vary widely. We asked readers to rate their annuity provider based on its customer service, how likely they are to recommend it to others and their overall satisfaction with the company.

Overall Winner: Prudential

Outstanding for:

• Customer service
• Most recommended
• Overall satisfaction

Prudential proved the prime choice among annuity companies in this year's awards. According to one reader and Prudential customer, "I took this annuity when I retired, and it provides a secure payment every year."

You can pick among a comprehensive set of Prudential annuities to fit your personal risk tolerance and income needs, including options with good downside protection and flexible withdrawals. The types available include variable annuities, fixed annuities, fixed indexed annuities, registered index-linked annuities and more.

Prudential has a reputation for financial staying power, earning an A+ financial strength rating from AM Best, a global credit rating agency.

Highly-rated providers

MassMutual

Outstanding for:

• Customer service
• Most recommended
• Overall satisfaction

MassMutual scored highly for all three criteria we asked readers to rate. One survey respondent says, "The service and product is outstanding." The company offers a range of annuity types, including variable annuities, deferred fixed annuities, fixed indexed annuities, registered index-linked annuities and immediate annuities.

New York Life

Outstanding for:

• Most recommended
• Overall satisfaction

New York Life took home the crown for overall winner among annuity providers last year, and many readers still deem it a great choice, with one expressing confidence that "New York Life will be able to withstand any market downgrade."

That trust in an annuity provider's long-term financial strength is crucial for those who are depending on it for guaranteed retirement income. "New York Life is the gold standard," another respondent says. "I would not use anybody else."

TIAA

Outstanding for:

• Customer service
• Most recommended

TIAA offers fixed and variable annuities to fit the retirement goals of a wide variety of customers. The company offers wealth management services, too, for those who want additional guidance on their retirement-income strategy and other aspects of their financial plan.

Nationwide

Outstanding for: Customer service

Nationwide makes it easy to set up an account, and it offers a range of tools and calculators to help you decide which type of annuity makes sense for you and how it should fit into your overall financial plan. Its array of annuity products includes fixed annuities, fixed indexed annuities, registered index-linked annuities and variable annuities.

Kiplinger Readers' Choice Awards Categories

• Readers' Choice Full-Service Brokers*
• Readers' Choice Wealth Management
• Readers' Choice Cash Back Credit Cards*
• Readers' Choice Airline Credit Card Rewards Programs*
• Readers' Choice National Banks*
• Readers' Choice Internet Banks*
• Readers' Choice Auto Insurance Companies
• Readers' Choice Homeowners Insurance Companies
• Readers' Choice Annuity Providers*
• Readers' Choice Tax Software*
• Readers' Choice Peer-to-Peer Payment Services
• Readers' Choice Awards Travel Rewards Credit Cards*

How Readers Chose the Winners

Kiplinger readers were invited to take the Readers' Choice Awards survey on Kiplinger.com between January 22 and February 19, 2026. The survey asked respondents to choose the financial product or service that they most frequently use in 13 categories: brokerage firms, wealth managers, IRA providers, cash-back credit cards, travel rewards credit cards, airline credit card rewards programs, national banks, internet banks, annuity providers, homeowners insurers, auto insurers, tax software and peer-to-peer payment services.

We asked readers to rate each provider they selected on a scale of one to 10 based on a few criteria. In many categories, readers rated the strength of customer service, how likely they would be to recommend the product or service to others, and how satisfied they are overall with the provider. In some categories, we included more nuanced criteria. With wealth management firms, we asked respondents to rate the trustworthiness of a firm's advisers and the quality of its financial advice and retirement-planning services. For IRA providers, respondents assessed the mix of investment choices available to them. For peer-to-peer payment apps and tax software, respondents evaluated ease of use, and for auto and home insurance companies, readers judged the competitiveness of rates and strength of the claims experience.

We calculated an average (mean) score for each criterion with each provider. We also calculated an overall mean score for all providers for each criterion we asked readers to judge. We compared individual provider mean scores with the overall mean, and the three highest-scoring providers that had a score above the overall mean won an "outstanding" accolade; in cases of a tie, more than three providers are named, and if fewer than three qualifying providers achieved an above-average score, only those providers are named "outstanding." In each category, providers are generally listed in descending order by the number of criteria for which they received the "outstanding" designation — so a product or company that is deemed "outstanding" in three areas, for example, is listed before a provider with one or two "outstanding" awards.

To choose an overall winner in each category, we added together the mean scores for each criterion rated for each product or service. The provider with the highest total score in each category took the prize for overall winner.

Because of a technical issue during 2026 survey data collection, some providers that readers evaluated in certain categories, marked with an asterisk, were ranked using patterns from 2025 consumer survey data.

Affected were three of 18 brokerage firms, six of 20 cash-back credit cards, two of 15 travel rewards credit cards, one of 13 airline credit card rewards programs, three of 33 banks, two of 14 annuity providers, and one of eight tax-software products. All other categories fully reflect 2026 data. All results represent actual Kiplinger reader feedback.

Editor's note: This is the fourth article in a five-part series about all-asset retirement planning that is covering such topics as using lifetime annuities and housing wealth, making the most of tax benefits and managing investment portfolio risk. The first articles are: It's Time to Redefine Retirement for Retirees With $500,000 to $5 Million, Unlock Housing Wealth and Tax Benefits by Adding Lifetime Annuities to Your Retirement Plan and Does Your Retirement Plan Ignore Half of Your Net Worth?

So many details factor into retirement planning: Income needs, how much to leave to heirs, protection against long-term care costs and, just as important, leisure and travel.

And then there are taxes.

Don't read this article for advice on avoidance. Taxes must be paid. You can exert some control over how much you pay, however, and when you pay them.

In the first three articles of this series, we've talked about the components of a successful retirement plan and the Three L's — Lifetime Income, Liquid Savings and Legacy — retirees are trying to achieve.

Of course, the success of any plan is very much determined by factors outside your control — tax laws and regulations, market volatility and your health and related expenses. We've tried to address the last with a new source of liquid savings in the form of HomeEquity2Income. The next article will address how to protect your plan against market shocks.

Here we'll address the impact of taxes on the Three L's — and how to take advantage of any tax breaks in the law, especially for income.

Detailed analysis of taxation of income

First, let's look in more detail at how retirement plan income is taxed, including where taxes can be deferred and how rollover IRA and personal savings compare as sources of income and tax.

Here are the income items that make up our plans, listed by tax efficiency:

Every retiree may not enjoy the tax advantages of each income source, but understanding what is available and how they work, separately and together, helps with planning. When we discuss legacy-related taxes later in the article, remember these income advantages, too.

Income tax objectives and measures

While there are planning models that can simulate a tax return, none, according to our research, can actually "optimize" results. The tricky part may be to prepare the correct set of more limited objectives.

Here are several measures of tax effects we'll use in this article:

• Income tax rates at start and at age 85
• Before and after-tax return on investment (ROI)
• Percentage tax cost: Difference between before- and after-tax ROI

Because certain tax rules and our planning models use age 85 as a pivot point, in calculating the ROI, we assume consistent tax rates from the start date to age 84 and from age 85 to 95. We use the percentage tax cost in measuring the impact of taxes on all-asset planning models vs. traditional Investment-only planning.

The challenge is to create a plan that meets, as best it can, the Three L's on a before-tax basis and to make sure that the specific allocations and elections don't take away that advantage on an after-tax basis.

Income tax analysis for a sample investor

To show how all the pieces above fit together, we built an All-Assets Plan for a sample investor, a 67-year-old man with $1 million in each of these three buckets: Rollover IRA, personal savings and value of the house.

Set out below is a detailed analysis of the first-year tax.

You will see there is a large amount of "safe" income in this plan, or income that is not affected by the sale of an asset, and therefore is something you can count on despite market fluctuations. In this plan, only $47,000 of IRA withdrawals out of $167,000, or 28%, require that assets be sold to generate the income.

Further, the chart is based on standard deductions, which our investor is assured of. In periods of high health-related expenses or inflation on property taxes, for instance, our investor might be able to itemize and create a larger tax deduction.

The payoff is that for this "safe" plan, the taxes represent an average of 9.0% of total income. (Note that this rate will not apply to the lifetime of a plan. The rate will vary from year to year and will increase at age 85, barring any large increase in deductible expenses.)

Compare to a traditional investment-only plan

In a traditional Investment-only plan, with no lifetime annuities and no housing wealth, the following work against tax efficiency:

• Only uses investment products without special tax benefits
• Higher allocation to fixed income portfolio with interest that is fully taxed
• No allocation to "safe" lifetime annuities and no benefit from tax incentives
• No tax-free HECM drawdowns to supplement income
• Greater need for withdrawals from IRA to generate income

Under this approach, there is a greater need for Roth conversions, which create their own tax breaks by first incurring taxable conversions.

In the investment-only plan, here are the key first-year results:

• First-year income is lower at $140,000 vs $167,000
• First-year tax rate is higher at 16.4% vs 9.0%

Extending an All-Assets Plan to age 85

While the income advantage for the All-Asset Plan continues for the early retirement years, most of that tax advantage reverses itself at age 85 when certain tax breaks end. Using the same methodology as above, the tax rate goes up as the tax-deferred benefits end.

However, the income amounts go up as well, particularly QLAC, and thus there's more income from that source — again pushing out the time for withdrawals.

At 85, the All-Asset Plan develops income of $238,000 and an estimated tax rate of 17.1%. The traditional investment-only plan income at 85 is $200,000 with an 18.5% estimated tax rate.

In the All-Asset Plan, we also provide for QLAC reserve income to pay for either the higher deductible expenses, taxes or both.

Tax analysis of legacy savings

Most of the tax attention above has appropriately been on income, particularly in the early retirement years. However, the amount paid out at passing (legacy), should get your attention as follows:

• Housing wealth. Step-up in basis of the value of the original home at passing
• Sale of house. Tax paid at sale, with some significant deductions
• Personal savings. Step-up in basis at passing
• Rollover IRA. Taxable at 100%
• Roth IRA. Not taxable

As we've written about before, aging in place — if it can avoid the sale of your house — can be a huge tax benefit.

Comparison of an All-Asset Plan to traditional investment-only

To put both the income and legacy elements together, we use the ROI as a measure of the economic return, considering both before- and after-tax income and legacy. Here's the summary between all-assets and investment-only planning.

In its simplest terms, you can save money when you take into account how taxes affect your retirement. Bottom line, the tax-cost advantage of an All-Asset Plan vs a traditional investment-only plan as measured here is .7%. That seems small, but not when compared with, say, advisory fees in the .5% to 1% range.

Housing wealth, personal savings and even Social Security benefits offer potential tax deferrals and savings. When creating a retirement plan, think about other tax benefits, such as deferring certain taxable events.

The tax code offers certain tax breaks that can improve your retirement outcomes. It's up to me and others in the advisory space to point you to these advantages. As a next step, visit Go2Income, answer a few questions about your current income and future needs and start creating your own plan to grow your retirement income and liquid savings.

Related Content

• For a Richer Retirement, Follow These Five Golden Rules
• This HECM-QLAC Power Move Can Unlock Guaranteed Retirement Income
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• How Your Home Can Fill Gaps in Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Money-market funds and savings accounts are liquid and stable, and can offer competitive rates. What’s not to love? Well, you could be earning more on your money elsewhere, especially now that money-fund rates have declined and may be heading lower.

While you need full access to some of your money to pay the usual bills and as a safety valve for surprises, such as an expensive auto repair or a medical bill, overinvesting in cash-equivalent funds has an opportunity cost. The key is to strike the right balance.

Most fixed-rate annuities and bank certificates of deposit (CDs) yield more than cash funds — sometimes much more — and the rate is locked in for the term. But many people hesitate because they’re leery of tying up their money. Some may believe that rates will be higher next month or next year. But delaying costs you.

Committing now can put you ahead

Let’s say you put $100,000 into a seven-year fixed-rate annuity — that is, a multi-year guarantee annuity (MYGA) that yields 6.30%, an annuity rate available as of early April 2026. Since that rate is set for seven years, you’re guaranteed to have an account value of $153,367 at the end of the term, assuming no withdrawals. If you don’t take any money out, all of your interest is tax-deferred.

Suppose you put your money in a savings account yielding 3.75% instead. (A year ago, you could have gotten around 5.00%.) If rates stay the same on average — they likely won’t — after two years, you’d be behind the annuity by $5,356. After seven years, you’d be behind by $23,972. If you chose to move the money into the annuity at this point, you could still come out ahead, but only if the rate on the annuity went up substantially over the next two years. To achieve the same value at the end of seven years, you’d need to find a five-year annuity paying 7.33%. I suspect that’s not realistic.

Most annuities give you penalty-free access to some of your money

While fixed-rate annuities never give you quick access to all your money, you’re not usually locking all of it up for the term. Knowing this can be reassuring. When you buy an MYGA, you usually have unpenalized access to some of your funds.

However, if you take withdrawals beyond what’s allowed by the contract, you will pay a penalty. By understanding the surrender period and choosing annuities that provide sufficient access to your money, you can avoid surrender charges.

For instance, let’s say you have a seven-year MYGA that lets you take out 10% of the annuity value without penalty each year after year one. The surrender charge for the amount above 10% might start at 9% in year one and decrease by one percentage point each year after that.

Most annuities also levy a market-value adjustment (MVA), which essentially acts as an extra charge that can apply to early withdrawals if interest rates have gone up since you purchased the annuity. If there’s a big rate spike, the MVA could dwarf the surrender charge. So, there’s a big incentive to avoid withdrawals that exceed contract limits. There are MYGAs without MVAs, but they may yield less.

Most products let you at least receive interest payments without penalty. While 10% annual penalty-free withdrawals are common, some annuities may allow less, such as 5%. A few don’t allow anything.

Look before you leap

Make sure to understand liquidity limits before you buy. Sometimes you can get a higher withdrawal percentage in exchange for a slightly lower rate. That can sometimes be worth the peace of mind and greater financial flexibility. If the annuity is in a traditional IRA, you may want sufficient penalty-free withdrawals to cover your required minimum distributions (RMDs), which start when you reach age 73.

Some annuities have enhanced withdrawal provisions (living benefits), which waive penalties if you need to withdraw money for events such as an extended nursing home stay or a terminal illness.

Any interest you receive from a non-qualified annuity (one that’s not in an IRA) counts as taxable income, and if you’re younger than 59½, it’s also normally subject to a 10% IRS penalty. This is one reason most people don’t consider annuities until they’re in their 50s.

It doesn’t make financial sense to avoid longer-term fixed-rate annuities when interest earnings can be dramatically improved over cash equivalents. But many people can’t see their way to committing in full now.

Half now, half later?

If you’re uncomfortable about locking in today’s rates, use a strategy of half now and half later. Allocate today half of the funds you’re considering for fixed-rate annuities. Set aside half in case rates increase in the near future.

Meanwhile, millions of sidelined investors are throwing away lost interest earnings every day. Many of these investors have already been waiting for a long time and have lost out on a lot of potential income.

Financial decisions are often emotionally driven rather than data-driven. But the data paints a clear picture. It’s almost always better to commit to a MYGA today rather than wait for some hoped-for future interest rate that may never come.

At the start, I wrote that the key is to strike the right balance. How do you do that? Your circumstances are unique and need to be analyzed to decide what’s right for you. This includes looking at the numbers and being frank with yourself about your risk tolerances and preferences.

After you think it through, you may find you can commit more of your money than you thought to longer-term vehicles.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm’s services; 100% of the client’s money goes to work for them in their annuity.

Related Content

• What are Annuities? The Different Types and How They Work
• Annuity Definition and 17 Terms You Need to Know
• Is An Annuity Your Missing Retirement Piece?
• Income and Life Expectancy Not Adding Up? An Annuity Could Solve the Equation
• Are Annuities Safe?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a previous article, I compared the fourth quarter of a football game to planning for and achieving a successful long-term retirement. And after reflecting on the 2025-26 NFL season, I feel it's time for an update.

We can learn a lot from football colloquialisms, such as "defense wins championships," "take the points," "don't give up the big play" and, my personal favorite, the presence of a person on the defensive side of the field called a "safety."

These strategies may be especially useful at the present time, when we're potentially on the precipice of a substantial and long-term pullback of market valuations.

Consider these two data-backed points:

One, you can compare the S&P 500 returns with the Cyclically Adjusted Price to Earnings (CAPE) ratios for the same index (you can get a visual here from MacroMicro). The Schiller CAPE ratio is a tool to assess long-term stock market valuations, which suggests that higher CAPE ratios might indicate lower returns over the next few years.

At the end of 2025 and coming into 2026, the CAPE ratio for the S&P 500 was 39.59. The last time we have seen CAPE ratios reach these dizzying heights was in December 1999, when the CAPE ratio reached a peak of 44.2 and remained above 40 for the first nine months of 2000.

Meanwhile, the S&P 500 hit a peak of 1,527 on March 24, 2000, and as the dot-com bubble ensued, it tumbled 49% from its peak in March 2000 to a trough of roughly 777 in October 2002.

This potential outcome would be extremely jarring to today's investors, who have unwittingly lulled themselves into expecting returns in the S&P 500 close to 20% or more over the last three calendar years.

And, two, you can see in this chart from GuruFocus.com how higher price-to-earnings (P/E) ratios in the S&P 500 relate to the timing of recessions. The 1929 Great Depression had a CAPE ratio of 32 at its peak in the months preceding the crash, the Dot-com bubble had a CAPE ratio that reached a peak of 44, and the 2007 Great Recession had a CAPE ratio that floated around 27 for months prior to a 57% drop in the S&P 500 from 2007 to 2009.

It should be cause for concern that, as mentioned before, the CAPE ratio reached 39.59 at the start of the year. These are, historically, some of the highest levels of market valuation we have ever seen with the S&P 500.

As the expression goes, history doesn't repeat itself, but it often rhymes.

So how do football colloquialisms tie into these market-related charts? Let's take a look.

Defense wins championships

The Seattle Seahawks vs New England Patriots Super Bowl LX was such a defensive battle that the game was boring for most football fans, and frankly, devastating for rabid, lifetime Patriots fans (like this writer).

Effectively and consistently managing risk (playing sound defense), like the Seahawks did, is what investors should be doing now, particularly if they are approaching retirement or already retired.

Take the points

In an historically low-scoring AFC Championship game this year, the Patriots ousted the Denver Broncos. On a key 4^th-and-1 play early in the game, Broncos coach Sean Payton "went for it" in an attempt to get the first down versus attempting a fairly easy field goal. Even the announcer said, "You really should take the points with two very stingy defenses on the field."

But the coach didn't take the points, and the Patriots stopped them and got the ball back on downs. The Patriots ended up winning the game by a score of 13-10 in a snowy second half, where they mostly ran three plays and punted the ball away several times to manage field position.

It was a very tough environment for both teams, where neither offense could make much progress. Perhaps we are looking at something similar in today's stock market, as indicated in the previous charts.

The analogy is to take profit, particularly when we are following three very successful calendar years in a row in the S&P 500. Taking money off the table and counting it as profit is very much like taking the points in a game where a lot is at stake, such as your entire retirement nest egg.

Safety

Why does football even have a position called safety? The answer is that there needs to be someone who makes absolutely sure the team does not give up such a big play that it would be hard to recover.

This would be just like enduring a substantial market correction or long-term downturn, either in retirement or just before it.

Managing risk tolerance is critical right now for all clients, not just those facing retirement, partly because people have lulled themselves into believing the market will only go up.

Again, after three strong S&P 500 calendar years in a row, they should probably be thinking the exact opposite, to avoid giving back all those returns.

Safe money strategies

In fact, there is an entire genre of financial instruments that fulfills the same role as a safety — stopping losses and not giving up the big play.

These are called "safe money strategies." They allow you to put an amount of money into an investment that will protect your principal and won't lose any value based on market fluctuations, yet still have the opportunity to grow by the very same force of market performance.

To grossly oversimplify these solutions, which primarily exist inside fixed indexed annuities and indexed universal life insurance, think of them as the safety associated with a money market, but with the opportunity to grow significantly more than the sub-4% accounts currently available.

In fact, when I recently looked back from 2000 to 2025 to plot the S&P 500 annual returns sequentially and compare them with a safe money strategy that had a 0% floor (aka no downside) and an 8.8% cap on an index pegged to the S&P 500, the results were shocking. Even with a cap of 8.8%, having a floor of 0% and reducing the impact that years of negative market return can have on retirement assets can have a significant impact on the long term growth of your money.

This is for conceptual and informational use only; this does not represent a recommendation to buy a specific product or investment. McAdam, LLC is not a tax advisory firm thus this does not constitute tax advice. Any tax decisions should be made with your tax professionals. Hypothetical returns using S&P 500 annual returns, an 8.8% cap rate and an annual floor of 0%.

This raises the question, why aren't more people using safe money strategies? In my opinion, there are three main reasons:

1. They don't know anything about them, even though they have now been around for 31 years.

2. Most financial advisers are really only money managers or asset managers. As such, all of their solutions tend to be market-oriented instruments such as stocks, mutual funds, ETFs and bonds.

In the example above, if you were to add a column for 10-year treasuries (aka intermediate bonds) over that same time frame, the safe money strategy would blow them away. This is because bonds can lose value, whereas a safe money strategy like this one cannot.

The phenomenon of never losing but always being able to win is a powerful long-term force, which most clients do not take advantage of.

As in football, people like to watch the high-flying gains of a strong offense more than bragging about a stingy defense. Defense may not seem anywhere near as alluring, and yet it is critical to a well-constructed retirement income plan.

3. The single biggest reason why people do not use safe money strategies is because the most common deployment is through the use of fixed index annuities. Annuities are deeply maligned in much of the mainstream media and throughout Google search results.

In fact, a very well-known financial company that spends over $100 million per year on advertising (according to a recent interview with its CEO) devotes an extraordinary percentage of that advertising to the task of denouncing annuities, as well as other financial professionals.

If you also can't stand those political campaign attack ads, then you might ask why? Could it be because there are now over $3 trillion in annuities, making that a good marketplace for them to go shopping for money management assets?

Ironically, the critical pamphlet includes several troublesome arguments that do not fully reflect how many modern annuities work. Because it comes from a well-known brand and echoes views that are commonly repeated online, many readers assume the claims represent the full picture. In reality, the facts surrounding annuities are often more nuanced.

Having said all of this, I'm not saying that fixed index annuities are for everyone. Nor am I suggesting that you should put all of your money into such a thing. But having some money in a very safe investment is like having the NFL's best safeties on your team.

Ultimately, when constructing a safe and protected retirement, you may want to take advantage of a paradigm that my firm has been using for a long time: Spend, protect, grow. We find it so effective that a little over two years ago I decided to write a book about it.

I don't care if you don't buy the book. All I care about is that you make your decisions based on facts and not hyperbole. A lot of the negatives circulated about annuities are patently false with respect to the programs that many people use today.

You owe it to yourself to determine how to get the league's best "safeties" on your team and protect what you have worked your whole life to accumulate, so that you can enjoy your golden years. Not only has football changed in the past 30 years, but so has retirement.

One last thing. The last Super Bowl, so heavily defense oriented, was pretty boring to non-Seattle or non-New England fans. It also may be boring to take money out of a growing asset just to protect it.

But it wins, and when it comes to your retirement, winning is so much bigger than even the NFL's biggest game. It's a ticket to your own Hall of Fame.

This article is provided by McAdam LLC ("McAdam" or the "Firm") for informational purposes only. Investing involves the risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), member FINRA/SIPC. Investment advisory services offered only by duly registered individuals of McAdam, LLC, a registered investment advisor. Insurance products and services offered through McAdam Financial. McAdam, LLC and McAdam Financial are not affiliated with MAS. This article is the sole opinion of this individual and is not indicative of the firm's belief.

Safe Money Strategies refers to fixed investments that provide downside protection and upside potential. These strategies include liquidity restrictions and surrender fee schedules that apply for part of the investment term. Please consult with your financial advisor on specific products, structure, and features for each particular strategy.

Related Content

• How Long? How Often? 10 Facts About Economic Recessions
• Is An Annuity Your Missing Retirement Piece?
• How Much Income Will an Indexed Annuity Get You? An Annuities Expert Lays Out the Numbers
• Myth Busters: Examining the Facts about Index Annuities
• 4 Keys to Reaching Your Lifetime Financial Goals

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuity buyers saw a surge in payouts in 2022 and 2023 because of persistent Federal Reserve interest rate hikes. Now, after two years of cuts, economists believe rates could be back on the rise later this year owing to inflationary pressures stemming from the Iran war.

These shifting dynamics highlight why it's essential to reevaluate older annuities — helping ensure your clients continue to maximize their retirement income potential, no matter how the market evolves.

Annuities remain a foundational tool in retirement planning, offering stability and guaranteed income. However, they are not set-it-and-forget-it products. They require regular reviews to stay effective as economic and personal landscapes shift.

Proactive annuity reviews help clients optimize their financial outcomes and position you as a trusted, client-focused professional who actively protects their wealth.

The case for annuity reevaluations

Changes in your clients' lives and the broader economy can directly impact the performance of their annuities. Shifts in financial markets alter the returns and advantages anticipated at the time of purchase.

As a financial professional, your responsibility is to help ensure clients' annuities continue to align with their evolving goals. To maintain the effectiveness of these products, you should conduct reviews every one to two years. This routine checkup helps guarantee that a client's coverage still fits their current circumstances.

Four triggers for annuity reevaluations

Several specific situations signal the need to look closely at an existing contract. Keep an eye out for these four primary triggers.

• Changing interest rates: Rising rates create massive opportunities for clients with older annuities. If a client locked in an immediate annuity when rates were low, they might be stuck with lower payouts for life. Upgrading can help secure a significantly higher income (and generate revenue for you).
• High inflation rates: Inflation erodes the buying power of fixed payouts. If a client secured a deferred income annuity to cover essential expenses, surging consumer prices may have diminished its value. Adjusting the annuity can help payments keep pace with rising costs.
• Unnecessary riders: Riders provide extra protection but also increase costs. A client may have added a death benefit or long-term care rider years ago. As life changes, these once-valuable add-ons may no longer make sense. Removing them reduces fees and improves efficiency.
• Life event changes: Major life shifts always warrant a review. Changes in marital status, employment, health or retirement income needs can alter financial objectives. Adjusting the annuity ensures it meets the client's new reality

Comprehensive annuity reviews

A proper annuity review goes much deeper than just analyzing performance and lifetime income payments. It requires a holistic look at the client's current life situation.

When conducting a comprehensive review, pay special attention to these critical areas:

• Beneficiary designations: Do you need to update beneficiaries to match the client's current intentions?
• Supplementary benefits: Are there unnecessary riders inflating fees? Are there new rider options that would provide better value?
• Ownership structure: Is the current ownership structure still tax-efficient and logical?
• Overall performance: How does the existing contract compare to new products on the market?

By asking these questions, you act as a proactive partner, guiding clients through complex financial decisions and helping ensure they remain in advantageous positions.

Real-world outcomes

To understand the impact of this process, consider how other financial professionals use annuity reevaluations to help increase growth.

Unlocking hidden value

One advisory firm we work with realized they had neglected back-book opportunities for far too long. To fix this, the owner hired a dedicated staff member to examine all business written over the past 15 years. This systematic approach quickly identified dozens of clients holding outdated contracts.

By upgrading these clients, the firm moved a significant amount of funds into better positions within just a few weeks. One client saw an increase in value after paying the surrender fee, translating to a monthly income boost. The firm increased its revenue significantly, while clients received life-changing income upgrades.

Balancing growth and service

Another financial professional capitalized on impending interest rate cuts by actively reviewing older contracts. Within a single month, he rewrote a large amount in annuity business, moving dozens of clients into positions that aligned with their goals.

He managed this while maintaining his active marketing routine, including educational workshops and seminars. By combining aggressive back-book reviews with front-end marketing, his firm surpassed its annual production goal months ahead of schedule.

Actionable takeaways

You can apply these exact strategies in your practice right now. Use these steps to help enhance client outcomes and grow your business.

1. Schedule regular reviews: Establish a strict routine for reviewing clients' annuities every 12 to 24 months. Make it a non-negotiable part of your annual client check-in process.

2. Invest in resources: Consider assigning a specific team member to pull customer relationship management data and review older contracts. Systematizing the process helps ensure no client falls through the cracks.

3. Educate and engage clients: Host workshops or send out short videos explaining how economic changes impact annuities. Educated clients are more likely to trust your recommendations when it is time to upgrade.

4. Prioritize client-centric solutions: Always present options that align with your clients' best interests. Even if it requires uncomfortable conversations about surrender fees, focus on the long-term mathematical benefit.

5. Stay proactive: Monitor economic trends constantly. When the Federal Reserve makes a move, be the first to call your clients and explain what it means for their retirement income.

The win-win of annuity reevaluations

Annuities are a highly strategic way to help secure steady income during retirement. However, the economic environment and your clients' lives never stop changing. By reviewing their annuity contracts now, you take a proactive step to confirm their retirement planning remains completely on track.

When you discover opportunities to adjust or exchange an annuity for a better option, everyone wins. Your clients can enjoy greater financial confidence and higher income, and you build a thriving, deeply trusted advisory practice.

Start looking at your back-book today. The hidden value waiting there might surprise you.

Advisors Excel's mission is simple yet profound: To help good advisers become great business owners while enabling their clients to enjoy the retirement of their dreams.

This content is for informational purposes only and is not intended as financial advice or advice designed to meet the needs of any particular situation. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. Our firm is not affiliated with the U.S. government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 5358488 – 4/26

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When you retire, you'll need income to replace the money you used to earn. If you have a fantastic pension and/or great wealth, no worries. But most retirees need new sources of income.

Social Security benefits alone rarely suffice and may be less generous in the future. Mandated IRA or 401(k) withdrawals are also part of the equation, and retirees who've put significant portions of their savings in stocks have done very well since 2009. But with the market near all-time highs, equities look riskier now.

What if you live well beyond the average lifespan? Will you run out of money? That risk rises for a married couple. For a 65-year-old heterosexual couple, the odds of at least one spouse reaching 90 are between 50% and 59%. There's a 7% to 8% chance both spouses will live to at least 90.

Annuities can produce safe retirement income and can guarantee that income for life, making them unique vehicles for reducing the risk of running out of money in old age. Let's look at the features, pros and cons of two options: A fixed indexed annuity with a lifetime income rider and a traditional income annuity.

Fixed indexed annuity with add-on: An innovative way to guarantee lifetime income

A fixed indexed annuity is a type of deferred annuity that credits interest based on the changes to a market index, such as the Dow Jones Industrial Average or S&P 500. Interest is credited when the index value increases for the year, but when it falls, you lose nothing, and that reduces risk and volatility.

It's sort of a have-your-cake-and-eat-it-too product, but you get only part of the cake, normally. In exchange for the no-loss guarantee, you'll typically get only part of the market's gains, especially in years where it's way up.

When you buy a traditional lifetime income annuity, you no longer have access to your money. Since the insurance company has converted your savings into a guaranteed stream of income, there is typically no cash surrender value.

An indexed annuity plus a rider (an add-on), often called a guaranteed lifetime withdrawal benefit (GLWB), avoids that drawback. You can get a high level of future guaranteed lifetime income while still maintaining control over your unused account balance. And you also usually retain complete flexibility about when you start receiving income. You can even stop receiving income and still access any remaining balance in your policy.

How the lifetime income rider works

The GLWB rider creates a second policy value called the "income account value." This is a calculating factor that determines the amount of your guaranteed income payments. It's separate from the underlying contract value. It has no cash value and cannot be withdrawn, but it is a real benefit.

The income account value typically grows at a guaranteed annually compounded rate of 6% to 10%. Your monthly lifetime payments are determined by the payout percentage, your income account value, your gender and your age when you start taking payments. If you can wait longer, you'll get more guaranteed income.

Different insurers use different actuarial calculations. Therefore, you may get more or less from a particular insurer even when all other things are equal.

Adding an income rider to an indexed annuity can be a powerful combination, but there is a cost, for instance, about 1% per year to get a 10% guaranteed annual income account value growth. This fee will be subtracted from your account value. That percentage may sound small, but if you have the annuity for many years, it will add up.

If you live long enough, the payments you get will deplete your account balance. But despite that, those payments will continue uninterrupted. That's the valuable "longevity insurance" GLWBs provide.

Some insurers claim their product can deliver much more future lifetime income, perhaps up to 60%, than a traditional stock and bond portfolio would under a reasonable scenario. That may be true, but your annuity agent should show you an analysis to determine how realistic it is.

Income annuities, immediate or deferred, are still a good option

While indexed annuities with GLWBs can definitely help protect you from inflation and the financial risks of longevity, they are complex, and it takes some work to figure out which one offers the best deal for you. If you want a simpler approach, consider the time-tested traditional income annuity.

For guaranteed lifetime income starting very soon, an immediate annuity is likely your best option. You can have your first payment in just a month.

You usually buy the annuity with a lump sum. In return for that deposit, the insurer gives you a contract that specifies how much income you'll get for life. You've converted your savings into your own private pension.

You can get inflation protection with a cost-of-living adjustment (COLA) rider that increases future payments by a fixed percentage, for instance, 1% to 5% annually. However, you will receive a lower initial payout.

You can buy either a single-life annuity or, if you're married, a joint-life annuity, which will cover both spouses. If your husband or wife outlives you, he or she will continue to get the same payments for life.

There are tax advantages, too. Each payment includes both tax-free return of principal and taxable interest. Once your entire principal has been paid back, which usually takes many years, the payments will become fully taxable.

Think you or your spouse may live to 95? Consider 'longevity insurance'

A deferred income annuity, sometimes called a longevity annuity, defers payments until a future date that you choose. Most buyers choose to start taking payments when they turn 80 or older. The longer you defer payments, the larger they'll be.

You'll know the exact amount of monthly lifetime income you'll receive and the exact date when it begins. You can buy either a single-life annuity or a joint-life annuity, which typically covers both spouses. It's a very efficient way to protect against outliving your assets in very old age.

The insurer invests your money for many years, enabling it to compound until you begin receiving income. Second, buyers who do not live to an advanced old age subsidize those who do. The longer you delay taking payments, the greater the monthly payout.

The longevity annuity offers a different way to plan for retirement. Suppose you'll retire at 65. You can use part of your money to buy a longevity annuity that will provide substantial lifetime income starting at 85, for example.

Then, with the balance of your retirement money, you only need to create an income plan that gets you from 65 to 85. You don't have to deal with the uncertainty of trying to make your money last for your entire lifetime.

You can buy a longevity annuity with taxable savings or within an IRA. The latter is called a qualified longevity annuity contract. A QLAC is a type of longevity annuity designed to meet IRS requirements. It lets you delay required minimum distributions. There's currently a $210,000 per-individual lifetime limit on deposits.

Neither an income rider nor a longevity annuity is the best choice for everyone. Both have their places, and pros and cons. Choosing the best income solution for you takes analysis and careful consideration.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

About 60% of Americans have money invested in the stock market. Because markets always move up and down, that also means that on any given day most people are not quite sure how much money they have.

In recent times, this has worked out okay because the good days have tended to exceed the bad.

But right now, many people are concerned. According to the weekly survey of the American Association of Individual Investors, on February 5, 2026, almost a third (29%) of investors expect the market to fall in the next six months.

While the market has been on an extraordinarily good run, downturns do happen and their effects can last. It took the stock market about five years to recover from the 2008 recession. It was a real challenge for people who needed access to money during that period.

In particular, the laws of economic gravity that influence the stock market have sizable implications for aspiring retirees. Anyone who has spent a lifetime gradually tucking savings into an equity-heavy 401(k) or IRA knows the feeling of watching an account balance sink. The closer one is to retirement, the deeper the pit in your stomach.

The thought of a shrinking nest egg forcing someone to work well past retirement age is demoralizing for many. One solution to this problem: An annuity.

Moving a portion of a nest egg into an annuity guarantees a lifetime income that protects retirees against running out of funds regardless of how the markets perform.

This can feel counterintuitive to people who think of retirement simply as the phase when savings are gradually spent down. Annuities bend this equation, providing a consistent paycheck while others see their savings balance dwindle.

Understanding annuities

Here's how annuities work: Someone with $250,000 in savings, for example, can use a portion to purchase an annuity now. Upon commencement, the annuity will deliver monthly payments for as long as the person lives, no matter how long that may be.

This can be an important income stream for anyone who has spent their working years paying monthly into Social Security and expecting that money to eventually flow back to their checking account. But for many people, Social Security alone does not provide enough lifetime income.

There are many types of annuities designed to meet the diverse needs of individual retirement savers. However, not everyone is convinced that annuities are worthwhile.

Some advisers offer to manage retirement assets for a fee, with strategies that seek to maintain or grow savings and minimize withdrawals.

Other people raise objections over the costs, fees or restrictions of annuities but fail to compare them against the value of guaranteed payments.

Yes, annuities have costs, like all financial products. But as the only true lifetime income product available, they give people the peace of mind to focus on retirement and not the markets.

While you can outlive your savings, you can't outlive your annuity.

The evidence for annuities

The obvious question for an aspiring retiree is whether an annuity is right for you. And, if so, how much of your nest egg should be used to purchase guaranteed monthly income.

The organization I lead, the American Council of Life Insurers, recently sponsored a study by two economists, Gaobo Pang and Mark Warshawsky. It found that the best strategy for the average investor having $1 million in assets, for instance, was a combination of stocks and annuities.

Alone, neither was perfect. But together, they provided the highest level of security, likely to provide adequate resources throughout life.

Many advisers push the 4% rule, which suggests taking 4% from investments in the first year and adjusting for inflation in future years. Pang and Warshawsky's research, however, suggests there is a significant failure rate at older ages and that this approach provided the lowest level of income.

While useful at all levels they studied, Pang and Warshawsky used $250,000 in savings as a reference point and found that annuities tend to provide more value as people have less saved, making them especially helpful for households with fewer retirement assets.

There are pros and cons that everyone should consider. And, very importantly, everyone's financial situation is different and there is no substitute for personal, expert guidance from a financial professional.

But as you think about the future, it might be a good idea to consider the option of locking in stock-market gains with an annuity's guaranteed lifetime income stream.

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• Why Annuities Sometimes Sound Too Good to Be True
• I Want to Buy an Annuity, but I'm Scared I'll Get Ripped Off. Should I Get One Anyway?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Editor's note: This is the second article in a five-part series about all-asset retirement planning that is covering such topics as using annuities and housing wealth, making the most of tax benefits and establishing an investment strategy. Article one is It's Time to Redefine Retirement for Retirees With $500,000 to $5 Million: Here's How.

With the benefit of Social Security, almost all retirees are guaranteed some level of lifetime income. So, the question isn't "Will I run out of money?" Instead, it's, "How much income is enough to cover my living expenses, after covering my late-in-life health and long-term care expenses?"

I've said in previous articles that lifetime annuities are an obvious choice for retirees' retirement plans, particularly with the near-extinction of employer-provided pensions and especially with pressures on Social Security.

If Congress fails to act by 2033, Social Security benefits could be cut by 23%, according to the Social Security Administration's 2025 Trustees Report.

If lawmakers do act, however, part of their solution could be to increase the age at which full benefits can be claimed, which would effectively be a cut in benefits for future retirees.

As I said in the first article of this series, I'm writing for the group of retirees known as "mass affluent," or the large cohort that, although reasonably well-off, cannot rely on their savings to produce enough interest or dividends to pay all expenses.

Types of lifetime annuities

Throughout this series, we will offer a guide to retirement planning that relies on easily understood and basic financial products that, in addition to protecting income and liquid savings, are designed to provide peace of mind.

There are two basic types of lifetime annuities that are used in retirement planning:

Immediate annuities start paying within the first year after purchase, often at the start of retirement, to provide a guaranteed lifetime income stream.

They can be customized to provide protection for a beneficiary and to continue income to a surviving spouse.

A qualified longevity annuity contract (QLAC) is a type of deferred income annuity that can be purchased with funds from a rollover IRA, and at the retiree's election, annuity payouts start no later than age 85.

Congress and the IRS created the QLAC to provide longevity protection as a partial substitute for pensions. To encourage the election of QLACs by retirees, they provided significant tax benefits. (More on that below.)

A QLAC can be used alone, but later in this article, I dive into ways to combine the benefits of a QLAC with a home equity conversion mortgage (HECM) to provide not only lifetime income, but also a source of liquidity to pay for unplanned expenses.

One word of caution about the term "annuities": I like to remind readers that annuities come in many different flavors, including "accumulation annuities" with income usually deferred and often with complex return formulas.

These annuity forms are quite popular, and in our planning, we treat them as part of our investment asset class, not like a QLAC that provides guaranteed lifetime income and valuable tax benefits.

Examples of lifetime annuity payouts

As discussed above, lifetime annuities come in different flavors depending on when payments start, whether there's beneficiary protection and whether income continues for one life or two.

Let's use a sample male retiree, age 67, with $100,000 in his IRA account allocated to lifetime annuities and compare the lifetime annual income each can purchase.

In all cases:

• The income is guaranteed to continue for life after the income start age
• The beneficiary protection guarantees the payments continue to the named beneficiary until a total of $100,000 is paid out
• The joint annuity continues to the surviving spouse

While both types of lifetime annuities are used as part of our planning, what's new on the scene is that a QLAC enjoys some special tax benefits.

Favorable tax treatment of lifetime annuities

The tax authorities and Congress believe in the value of lifetime annuities. Here are some key examples:

Up to $210,000 of a rollover IRA for each retiree can be used to purchase a QLAC without any taxable event until payments are received. That deferral can be as late as to age 85, and with the most recent tax enhancement, there's no additional limit on the percentage of the rollover IRA account used to purchase a QLAC.

From the table above, a 67-year-old man uses $100,000 of his rollover IRA to purchase about $60,000 of lifetime income starting at age 85, which can be used by the retiree to meet all kinds of expenses.

When an immediate annuity is purchased out of personal savings (no limit), a portion of the annuity payment is considered a return of investment and is not taxed.

For a 67-year-old man who uses $100,000 from personal savings to purchase $8,700 per year in lifetime income, nearly two-thirds of that payment is excluded from tax during the first 17 years.

Under an inherited IRA, a surviving spouse can apply the inherited funds to purchase a lifetime annuity, which both secures lifetime retirement income and spreads the tax bill.

Combining a QLAC with housing wealth

Longtime readers know that I like QLACs, not only for the longevity protection and tax benefits above, but also for their ability to complement other parts of retirement plans, particularly HECM, which accesses housing wealth, the single largest amount of savings for most retirees.

Here are three examples of QLAC utilization that we use in our planning:

• Continue HECM drawdowns from 85 and for life
• Provide guaranteed lifetime inflation protection
• Make all or part of HECM interest payments with a QLAC's reserve income

The charts below show examples for our sample homeowner with a home worth $1 million.

The first chart shows HECM payments of $18,000 a year from age 67 to 84. In the second chart, QLAC payments kick in at age 85. Chart three demonstrates how a laddered progression of QLAC payments provides growing income and protection against inflation.

In addition, in our HomeEquity2Income, or H2I, planning component, HECM provides liquid savings through a line of credit (see graph four below).

Although substantial, it may not be large enough to cover long-term care and other large expenses later in retirement.

To grow that liquid savings after age 85, the retiree can direct a portion of QLAC payments to pay HECM interest.

Graph five below shows the impact on liquid savings from these HECM interest payments. Because interest is paid, there is a tax deduction that offsets all or part of payments using annuities.

To describe it all another way, retirees have options beyond spending down the money they have saved in their 401(k) or IRA. Combining the strengths of various financial instruments, like a QLAC and a HECM, can make savings do more.

My next articles will discuss other aspects of H2I, but you can visit Go2Income now, answer a few questions about current income and future needs and start creating your own H2I plan to build retirement income and liquidity.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuities are a popular component of many retirement strategies, particularly with increasing U.S. life expectancy. But how safe are they?

Annuities have come through for Americans for many years. They're generally low-risk but not entirely risk-free. Risk depends on the type of annuity you choose and which issuing company you select.

Can you lose money in an annuity?

An annuity is a contract between an individual and an insurance company. You, the owner, can buy an annuity with either periodic payments or a lump sum. They come in two basic types: fixed and variable.

With fixed annuities, the owner will receive either a guaranteed monthly income stream starting immediately or at a future date, or a guaranteed return of their money at a fixed or fluctuating interest rate.

In contrast, with variable annuities, the money you use to fund the account is invested in subaccounts that can be affected by market fluctuations.

The subaccounts are much like mutual funds that can be invested in stocks or bonds. If the stock or bond market rises, your annuity value increases.

However, if the market drops, you could lose a significant amount of your investment.

Variable annuity riders (optional add-ons) may be touted as protecting against market downturns. For an additional fee, they can help protect your investment from some, but not all, downside risk.

With variable annuities, you assume at least some of the risk and volatility. That may be OK, but you must go into it with your eyes open.

Fixed annuities, in contrast, do protect against market risk because the insurance company assumes the risk. Your principal, interest and future payments are guaranteed — provided the company remains solvent.

While annuity companies can become insolvent, it's rare for highly rated medium to large life insurance companies to fail. Regulators in the state where the company is domiciled watch over insurers for signs of potential weakness and work hard to make sure insurers in their state stay healthy.

Financial-rating companies such as AM Best, Standard & Poor's and Moody's also monitor insurers closely.

The best way to reduce the risk of insolvency is to choose a financially strong insurer. I recommend buying only from a company rated at least B++ by AM Best.

If you're more cautious, you may want to go with an A- or higher, especially when choosing a lifetime-income annuity.

Consider purchasing annuities from two or more insurance companies to mitigate the risk of default, especially if you're making a large purchase at once.

If you buy annuities at different times, this will probably happen on its own because the insurer offering the best deal today is rarely the market leader next year.

Inflation and purchasing-power risk

Inflation is another risk to consider when planning for retirement. With rising inflation, purchasing power gradually decreases. This concern also applies to annuities that provide a fixed interest rate or income stream, such as fixed annuities.

For instance, if you receive $3,000 per month from your income annuity over many years, your money will lose its value over time because of inflation. Keep this in mind when planning for long-term retirement income.

Some companies offer an optional inflation rider on immediate and deferred income annuities. The rider guarantees a higher future payout.

For example, you may buy a rider that increases future payments by 1% to 3% annually. The downside is that the rider is not free; you must make a larger deposit to get the same initial income.

The multi-year guarantee annuity, or MYGA, known as a fixed-rate or CD-type annuity, is popular. These annuities provide a guaranteed interest rate for a specified period (typically two to 10 years).

Like all annuities, MYGAs are still subject to the risk of inflation. If your guaranteed annual interest rate is 5% and inflation rises to 8%, the real value of your annuity will decline.

Today, MYGA rates are historically high. There's no guarantee inflation won't roar back, but current rates typically exceed the rate of inflation.

Variable annuities invested in stock accounts can potentially beat inflation, but expose you to market risk. However, there is a fixed-annuity type that provides powerful inflation-fighting potential with much lower volatility.

It's called the fixed indexed annuity. It credits interest annually to your account based on annual changes to a market index, such as the S&P 500 or Dow Jones Industrial Average. You receive an interest credit when the index value increases.

Nearly all indexed annuity interest-crediting-formulas have limits, so interest earnings will usually be based on only a portion of the change in the market index over each index-crediting term (usually one year).

In exchange for the added guarantees and principal protection, you may not receive 100% of the index market gains.

During down years, you typically receive no interest, but you don't lose anything. Your principal and all previously credited interest can never be lost and are always protected, even if the stock market crashes.

In effect, you can have your cake — part of it, anyway — and eat it, too. The product offers an appealing combination of low risk coupled with higher potential returns.

It is complex, however, and choosing the right one takes considerable thought.

You must be willing to accept a fluctuating interest rate that may be as low as zero some years. If you're relying entirely on your annuity to produce predictable income, this type won't work for you unless you add an optional income rider.

You can mitigate risk by splitting your annuity assets among multiple types — fixed-rate, fixed indexed, variable and income annuities.

The risk of not being able to access your money — liquidity

It's possible that you may not be able to access your annuity funds when you need them. Annuities are somewhat illiquid, meaning they often may not be fully converted into cash without penalty.

Almost all deferred annuities, whether variable or fixed, include "surrender periods" during which withdrawals may result in penalties.

However, many, especially MYGAs, offer penalty-free withdrawal provisions, usually allowing up to 10% of the contract value to be withdrawn annually.

Any interest withdrawn from a nonqualified annuity (one that's not in an IRA or Roth IRA) is normally subject to a 10% IRS penalty if you're younger than 59½. That penalty is waived in the case of permanent disability.

You can avoid surrender penalties and liquidity risk by not putting any money you need for short-term needs in an annuity.

This is especially true for income annuities. They typically have no cash value. Once you've bought one and gotten past the free-look period, you can't take withdrawals. You can only receive the periodic payments as specified in the contract.

Managing death risk

MYGAs, fixed-indexed and variable annuities will usually pass intact to your spouse as the primary beneficiary if you, the owner, should die. Assuming your spouse keeps the annuity, the guarantees, value, interest rate and term will remain the same.

If your primary beneficiary is not your spouse, most of these products will allow a full surrender of the annuity without penalty, even if the death occurs during the surrender-penalty period.

With life-only income annuities, it's different. If you pass away before the full amount deposited into your annuity has been paid out, the insurance company can keep the remaining balance.

Most income annuities can be tailored with various payment options, such as a joint-and-survivor arrangement, enabling payments to continue to a designated beneficiary, such as a spouse.

Here, the lifetime payments will continue as long as one spouse is alive. Most married individuals choose this option.

Another popular option is to add an installment refund provision to ensure your beneficiaries get back at least the amount you originally put in.

Annuities are a popular and reliable option for many individuals saving for retirement. If you take a little time to understand the risks and benefits, you'll make informed decisions to ensure they align with your long-term financial goals — and you'll avoid any unpleasant surprises.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

Related Content

• Are You 'Too Old' to Benefit From an Annuity?
• Could an Annuity Be Your Retirement Safety Net? 4 Key Considerations
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• How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific
• How Much Income Will an Indexed Annuity Get You? An Annuities Expert Lays Out the Numbers

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For many people, investing in the stock market feels like the default path to building long-term wealth.

The potential upside is real. History shows that stocks have rewarded patient investors who can weather volatility and stay invested through downturns.

But not everyone wants to ride out those swings, and not everyone should.

There are moments in life when protecting what you have matters more than chasing what you hope to gain. This is where insurance-based options, such as fixed annuities or fixed indexed annuities, can play a meaningful role.

These products do not replace investing and are not meant to. Instead, they offer an alternative for people who value stability, predictable income or principal protection during uncertain times.

Knowing when to participate in the market and when to step aside is one of the most important decisions in retirement strategy. The right choice depends on your goals, your time horizon and your tolerance for loss.

The appeal of investing

The stock market offers the potential for long-term growth that outpaces inflation. For people with decades before retirement, regular contributions and time in the market can create meaningful opportunities.

Even for retirees, a portion of assets in equities may help portfolios grow enough to support longer lifespans and rising expenses.

The challenge comes with volatility. Markets move quickly. News cycles accelerate emotions. Economic shifts can create sudden declines that take years to recover from. Growth potential works in your favor over the long run, but only if you can stay invested through periods of discomfort.

That is a big "if." Many people discover that they are less comfortable with risk than they expected once the market drops and the headlines turn negative. Selling during a downturn can lock in losses that are difficult, if not impossible, to make up later.

The need for safety

As people approach retirement or transition into more income-focused stages of life, the tolerance for market swings tends to shrink. A major downturn early in retirement can threaten the sustainability of a portfolio, especially if withdrawals occur at the same time.

This is where safe-return options can provide structure. Products like multi-year guaranteed annuities (MYGAs) or fixed indexed annuities (FIAs) are built for people who want protection rather than participation. These options:

• Protect principal from market loss
• Offer predictable interest or index-linked earnings
• Provide opportunities for lifetime income
• Reduce emotional decision-making during market volatility

They are not designed to beat the market. Their purpose is to create a stable foundation so you are not overly dependent on investments for every part of your retirement strategy.

When it makes sense to consider stepping aside

You do not need to avoid the market entirely to benefit from safe returns. The question is not "stocks or safety," but rather "how much risk makes sense for your situation?"

Here are times when insurance-based fixed or indexed options may be a better fit.

You are within five to 10 years of retirement. Market losses late in your working years can derail retirement timing. If you cannot afford a major setback, shifting a portion of assets to principal-protected options can help secure the foundation you are building.

You need predictable income. If you want part of your retirement income guaranteed, annuities can help create a stable cash flow without relying on market performance. This gives you the confidence to let other investments pursue growth.

You are risk-averse or feel anxious during market swings. Investing should not feel like a constant emotional battle. If volatility makes you uncomfortable or causes reactive decisions, safety-oriented products can help remove stress from the equation.

You have savings you cannot afford to lose. Some dollars are "must-have" funds. This might include emergency savings, future income needs or legacy assets you want protected. Market-linked products with no downside exposure can help preserve these dollars.

You want diversification beyond traditional investments. Diversification is not only about owning different investments. It is also about combining assets that behave differently. Fixed and indexed annuities do not move with the market, which can bring balance to a portfolio.

Why the balance matters

Safe returns alone rarely generate the long-term growth needed to outpace inflation. Market growth alone may expose you to unnecessary risk at the wrong time. Most people benefit from a blend of the two.

The goal is not to guess what the market will do next. The goal is to match your strategy with your comfort level and your timeline. People who enter retirement with a mix of protected income and growth potential often feel more confident about their ability to handle both opportunities and challenges.

Insurance-based products play a supporting role by offering stability where you need it most. This lets your investment assets work more efficiently, since you are not forced to sell in a downturn or take more risk than you want.

How to decide what is right for you

If you are unsure whether the market is right for you right now, consider taking the following steps:

Review your time horizon. Shorter timelines call for more protection. Longer timelines offer more room for growth.

Identify the dollars you need to protect. Determine which assets must remain stable and which can pursue higher returns.

Evaluate your emotional tolerance for loss. If volatility disrupts your confidence or decision-making, build a stronger safety net.

Consider your income needs in retirement. Guaranteed income sources can reduce pressure on the rest of your assets.

Talk with a financial professional who understands both sides of the equation. An insurance-licensed professional can help you explore options that protect principal and provide income, while coordinating with your broader strategy.

The market can be a powerful engine for long-term growth, but it is not the only tool available. There are times when stepping aside and relying on safe returns is not just wise but necessary.

When you know your comfort level and your goals, you can build a balanced approach that protects your present while still preparing for your future.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For decades, bonds have played a familiar role in retirement portfolios. They are meant to reduce volatility, provide income and act as a counterbalance to stocks, especially as investors approach and enter retirement.

But with the Federal Reserve signaling more potential rate cuts ahead, many investors are facing a key decision: How best to allocate the portion of a portfolio traditionally reserved for bonds.

One option worth understanding is the fixed indexed annuity.

The challenge facing traditional fixed income

Today's bond investors are confronting a very different environment than they were just a few years ago. After a period of elevated interest rates, yields on high-quality bonds are attractive compared with much of the past decade.

At the same time, the prospect of future rate cuts suggests that yields may compress, which can weigh on fixed income returns.

This dynamic has raised questions about whether traditional fixed income, by itself, will deliver the combined income, stability and return many retirees expect, especially over the long haul.

It has also prompted financial advisers to consider how other alternatives might complement or enhance the bond portion of a portfolio.

What a fixed indexed annuity does

A fixed indexed annuity (FIA) is an insurance contract designed to provide principal protection while offering the potential for growth tied to a market index, such as the S&P 500 price index.

Unlike direct market investments, FIAs do not participate in market losses. When the linked index posts a loss, the annuity's contract value does not decline because of market performance.

In exchange for this protection, growth is typically limited by caps, participation rates or spreads, and dividends are not included in index calculations. The result is a return profile that is intentionally smoother than equities and can be more competitive than traditional fixed income in certain rate and volatility regimes.

In simple terms, an FIA seeks to do what many investors want bonds to do: Limit downside risk while still providing reasonable upside potential.

What the research says

Academic research supports the idea of diversification beyond traditional stocks and bonds to improve risk-adjusted outcomes.

Pioneering work by Roger Ibbotson, professor of Finance at the Yale School of Management and founder of Ibbotson Associates, has shown that investors are rewarded for exposure to multiple risk premiums and that combining assets with different risk and return characteristics can enhance portfolio outcomes over time.

In research examining long-term market data from 1927 through 2016, Ibbotson and his colleagues found that a simulated FIA tied to a large-cap equity index produced bond-like volatility while delivering a higher annualized return than long-term government bonds, with zero negative rolling three-year periods.

That combination of downside protection and competitive long-term return aligns closely with the role many investors expect bonds to play in retirement portfolios.

Indexed strategies that blend principal protection with participation in equity returns can therefore occupy a middle ground, dampening downside risk while still capturing a portion of market upside.

By combining assets with imperfect correlations, diversified portfolios have historically demonstrated improved risk-adjusted performance, particularly during periods of market stress.

Why timing matters right now

FIAs are sensitive to interest rates in a different way than bonds. Higher interest rates generally allow insurance companies to offer more attractive crediting terms. As rates decline, those terms tend to become less favorable for new contracts.

That means today's environment, before rates potentially move lower, may be an advantageous time to evaluate whether an FIA makes sense for part of a portfolio. Much like locking in attractive bond yields, an FIA allows investors to lock in contract terms that may not be available in the future.

This does not mean abandoning bonds entirely. Instead, it may mean reconsidering whether all of the traditional bond allocation truly needs to be limited to conventional fixed income.

FIAs as a bond complement, not a replacement

FIAs are not designed to replace equities, and they are not suitable for short-term money. They are long-term tools intended for retirement-focused capital. For the right investor, however, FIAs can complement bonds by:

• Reducing portfolio volatility
• Providing downside protection during market declines
• Offering tax-deferred growth
• Helping mitigate sequence-of-returns risk near retirement

When structured properly and matched to an investor's goals and time horizon, FIAs can serve as a stabilizing element in a diversified retirement portfolio, helping to balance growth potential with downside risk control.

The bottom line

FIAs are not one-size-fits-all. Liquidity needs, tax considerations, time horizon and overall portfolio construction all matter.

In an environment where bond yields may compress and rate expectations are evolving, it may be time to revisit old assumptions. A traditional 60/40 portfolio worked well for decades, but the coming years may require a more flexible approach.

For investors nearing retirement who value stability, predictability and protection, fixed indexed annuities deserve thoughtful consideration as part of the broader discussion.

As with any financial strategy, it is important to evaluate how FIAs fit within your overall approach and to work with a qualified financial professional before making investment decisions.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuities are designed to help you save for retirement. But is it wise to buy an annuity in your 70s or 80s?

It can be. At this age, most people need and want to reduce their risk and generate reliable income — two things that annuities do well.

Whether an annuity will work for you depends on your savings, Social Security and any pension benefits, spending habits, health, age and risk tolerance.

A 71-year-old working part time is in a different situation than a retired 84-year-old. A type of annuity that's suitable for the former may be unsuitable for the latter.

Retirees turn to annuities — calm in a stormy environment

Investment markets are more volatile. While the stock market rewarded investors handsomely in recent decades, older Americans remember gut-wrenching drops in 2002, 2008 and 2022.

When you're middle-aged, you can fasten your belt and enjoy a wild ride on the financial roller-coaster. It's a different story when you're older.

Inflation has made an unwelcome comeback and may be around for some time. Health care costs are increasing. Premiums for both basic Medicare and Medicare supplements are rising.

More retirees are attracted by the guarantees offered by fixed annuities, which can guarantee principal and interest or can provide lifetime income and can help counteract the impact of inflation.

Fixed annuities are different from investment-oriented variable annuities, which offer tax advantages but don't guarantee principal, making them less attractive to older retirees.

It's simplistic to say that annuities are "good" or "bad" for people in this age bracket. I believe that most people in their 70s or 80s — except those with so little savings that they need full liquidity — could benefit from an annuity. But you must get the right kind for you.

Many people think of annuities as a product that guarantees a lifetime stream of income. But that's not the only type, and an income annuity may not always be the best choice for an older retiree, who may be better served by a fixed-rate annuity that can provide interest income and protect principal.

Income annuities: Make your own pension

An income annuity is like your own private pension. You send the insurance company a lump sum, and it contractually guarantees to pay you a stream of income, either starting almost immediately or at a future date you choose. You've converted your savings into a future income stream.

Income annuities are valuable because they can guarantee a steady income no matter how long you live, making them "longevity insurance." You can also choose a set period for benefits, such as 10 or 20 years, but most people take the lifetime option.

The disadvantage is that you no longer have access to your money. You've committed to the contract.

Someone in their early 70s in good health with good savings but no pension and modest Social Security benefits could be a perfect fit for a lifetime income annuity. They may be able to safely devote some savings to an income annuity.

If married, the person can choose an annuity that will keep paying the same benefits to a surviving spouse. Today, the odds are good that at least one partner will live past 90.

Insurance companies do have age limits on new income annuities. They typically won't underwrite anyone older than 85.

Fixed-rate annuities can substitute for CDs or bonds

Consider someone who's single, 82, not in good health and unlikely to live many more years and unlikely to get full value from a lifetime annuity. They will need access to funds and would look to secure savings vehicles.

These include CDs, bonds and deferred annuities. All have their place, but deferred annuities are often overlooked.

A multi-year guarantee annuity, or MYGA, is often called a CD-type annuity because it guarantees an interest rate for two to 10 years. If you cancel a MYGA before the term concludes, the insurance company will levy a penalty.

But many products allow penalty-free withdrawals up to 10% annually, providing valuable flexibility for retirees. Laddering MYGAs (staggering terms) also promotes flexibility.

"Nonqualified" annuities—those not held in a qualified retirement plan — offer tax advantages. They're tax-deferred: You're not taxed on interest earned as long as you let the interest accumulate in the annuity.

However, many will allow you to receive regular taxable interest payments if you like, which makes them suitable for retirees who want income while protecting their principal.

MYGAs can pay markedly higher interest rates today than CDs, with the top performers yielding from 5.70% to 6.30%, depending on the term. Some insurers will issue them for people in their late 80s or even their 90s.

MYGAs aren't guaranteed by federal deposit insurance, but they are guaranteed by the issuing insurance company. Insurers are strictly regulated for solvency by state insurance departments. Check the company's AM Best rating before buying.

Have a real conversation with your agent

Every annuity agent wants to make a sale and earn a commission. The best ones will ask questions to help you select the product that best meets your needs.

That's in the agent's long-term interest, too, because happy clients will spread the word to their friends. An agent who pressures you to make a snap decision isn't on your side.

If you're in your 70s or 80s, an annuity may or may not be a good choice for you. But you won't know unless you learn about your options.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Last year was eventful for financial markets. Stocks (despite a deep dive in the spring) and bonds performed quite well as interest rates dropped.

Will the boom times continue in 2026? Perhaps, but no one has a crystal ball. What is certain is that financial markets, especially stocks, don't go up forever.

The reckoning will come, but no one knows when it will happen, and if you're not properly positioned, it can be terrifying.

If you're overly invested in stocks and must take systematic withdrawals in retirement when the market is down, it can send your portfolio into a nosedive, perhaps even a "death spiral."

The beginning of the year is a great time to make sure your savings and investments are aligned with your goals, are tax-efficient and don't expose you to excessive risk.

Here are six key steps.

1. Figure out how much income you'll need in retirement

This becomes especially germane in your 50s and 60s. Many people can calculate it using a retirement calculator on the web. Searching for "retirement income calculator" will give you several choices.

If you don't feel comfortable doing this, consider hiring a qualified financial planner who can give you an unbiased figure.

Once you've got an estimate, you can start structuring your savings and investments to produce the necessary income. While savings accounts and stocks can produce income, the income stream they produce varies.

Only three things can offer a guaranteed lifetime income: a traditional employer-provided pension (which is rarer now), Social Security and a lifetime income annuity.

The latter allows you to create your own pension by converting a portion of your savings to a stream of guaranteed income. It serves as longevity insurance.

2. Estimate your 2025 federal and state income taxes and look for savings opportunities

The tax law changed last year, so your federal tax bill might be lower than previously. Nevertheless, if you're holding all or most of your savings in taxable accounts, you have an opportunity to reduce your taxable income by moving some money to tax-free and/or tax-deferred accounts.

Contributing to tax-deferred retirement accounts, such as a 401(k) or a traditional IRA, or to a tax-free Roth IRA, is the first line of defense. If you can afford to set aside additional money for the long term, consider also purchasing a deferred annuity.

Annuity interest is not taxed as long as it's reinvested in the annuity and not withdrawn. Since withdrawals of annuity interest before age 59½ are normally penalized by the IRS, most people don't consider annuities until they're in their 50s.

Deferred annuities come in several flavors. Fixed-rate deferred annuities act much like a tax-deferred version of a certificate of deposit (CD), but they're issued by insurance companies rather than banks and aren't covered by the FDIC.

Fixed-indexed annuities provide market-based growth potential plus guaranteed principal, and variable annuities let you participate in the stock and bond markets but put your principal at risk.

3. Check your asset allocation and rebalance if necessary

An asset allocation plan means that you set the percentages you put in equities (stocks or stock funds) and in fixed income, which includes savings accounts, money markets, CDs, bonds and fixed-rate annuities.

If you're overinvested in one area, such as equities, because of the rise in the stock market, you should rebalance to achieve your desired asset allocation.

Let's say you decided to keep 55% in equities and 45% in fixed income a few years ago. Thanks to a booming stock market, your allocation now stands at 65/35. It's time to consider rebalancing to bring it back to 55/45 again.

A separate issue is that as you approach retirement, your optimal asset allocation might change, with less money in stocks and more in guaranteed safe investments.

Once you're retired and begin withdrawing your savings and need income to replace your wages, you'll likely want to become even more conservative.

Sticking to your asset allocation decreases excessive risk and prevents you from buying high and selling low. When the stock market falls, you'll be less tempted to sell everything because you'll also have a solid cushion of fixed assets.

Many people without a plan panic and sell their stock funds at exactly the wrong time, when the market is at a low point.

You'll also be able to resist overinvesting in the stock market when it's reaching new highs. When there's a strong bull market, it's easy to forget that what goes up will come down eventually.

The right asset allocation is individual. Besides your age and expected income in retirement, your psychology is important. Some people are risk-averse; some don't mind the ups and downs of the stock market too much.

4. Compare alternatives for safe, reliable income

When re-investing money from maturing certificates of deposit or bonds, don't automatically re-up. You might get a better rate elsewhere. Money market accounts, bank certificates of deposit and bonds now pay reasonable rates, but you might be able to do better.

Bond funds are liquid, diversified and easy to buy. However, you can lose money in them. If rates spike after you buy a fund, the value will decline. If rates decline, the share price will increase. Long-term bond funds can be especially volatile.

Many people who choose bank CDs by default can get a higher rate with a fixed-rate annuity. Also known as a multi-year guarantee annuity (MYGA) or a CD-type annuity, it acts much like a bank certificate of deposit.

As with a CD, it pays a guaranteed interest rate for a set period, usually two to 10 years. Unlike CD interest, annuity interest is tax-deferred until withdrawn.

Both principal and interest are fully guaranteed by the issuing insurance company. Although state regulators monitor the financial strength of insurers, they're not covered by deposit insurance, so it's wise to check the insurer's AM Best financial rating.

Fixed annuities let you reinvest interest earnings without risk because reinvested proceeds earn the same rate as the base annuity, guaranteeing the yield for the term.

Deferred annuities are tax-deferred. All interest earnings left inside them compound tax-deferred until withdrawn. You can wait until retirement, when your tax bracket is likely to be lower, to start taking withdrawals.

MYGAs do have less unpenalized liquidity than bond funds. You can always cash them in, but you might pay a fee for an early surrender. Because annuities are less liquid than bond funds, you probably wouldn't want to put all your fixed-income investments into them.

But there is typically some liquidity. Many fixed annuities let you withdraw up to 10% a year penalty-free. They're more liquid than most CDs, which often have penalties for early withdrawals of any amount.

5. Consider a lifetime annuity to create your own pension

With a lifetime income annuity, you pay an insurance company a lump sum, which it converts into a stream of income guaranteed for life. You're creating your own private pension. You can choose either immediate payments (immediate annuity) or defer them until a future date you choose (deferred income annuity).

If you're married, you can choose an option that will protect your spouse. With the joint-life option on a lifetime annuity, payments will continue as long as one spouse is alive.

I'm a big advocate of lifetime annuities, but anyone considering one should realize that you no longer have access to your principal once you commit.

However, if you can afford to tie up some of your savings, they can be a great option.

6. Make sure your beneficiaries are up to date

The listed beneficiaries on annuities, life insurance policies and retirement plans will receive the proceeds on your death, regardless of what your will says.

Marriage, divorce, the birth of children or grandchildren and the death of a loved one may require updating your beneficiaries.

If you're married, your spouse is normally your primary beneficiary, and your child or children are contingent beneficiaries. But if you've been divorced and remarried and your ex-spouse is still listed as the beneficiary, the proceeds will go to him or her.

There's never a bad time to review your finances and investments, but the early part of the year is an especially good time to do it because you'll have the data from the previous tax year to help guide you.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

When should you start taking Social Security benefits? For many retirees, that can seem like a no-win choice.

While delaying taking benefits gives you a higher benefit amount, many retirees can't afford to or don't want to delay receiving benefits until age 70.

But there is a proven, safe way to boost income while waiting for your benefits to begin: buying an income annuity that guarantees monthly income for either a set number of years or your lifetime.

Delayed benefits and your break-even point

There are three ages to be aware of. At 62, you can start taking reduced benefits, which are about 30% less than if you wait until 67, which is the full retirement age for people born in 1960 or later. Each year you delay past 67, up to age 70, you'll get a greater monthly payment.

If you wait until 70, you'll get about 24% more each month than if you took benefits at age 67. The difference between starting at 62 and 70 is huge: about 77% higher starting at 70.

The difference is locked in, so future cost-of-living adjustments (COLAs) will be applied to the higher base benefit.

Delaying payments has a cost, though, because you're giving up income for anywhere from one to eight years, and it takes time for the higher delayed benefits to catch up.

The break-even age varies from about 79 to 82 (give or take). For example, someone who started taking benefits at 70 will likely have received slightly less income by age 80 than someone who started at 62.

By age 83, however, the person who waited until 70 will be comfortably ahead, and the gap will keep growing. The break-even age for delaying benefits from age 67 to 70 is about 82.

If you're married, you also need to consider your spouse, and that's another argument for delaying benefits for the higher earner.

The Social Security Administration points out, "If you are the higher earner, and you delay when you start your retirement benefit, it will result in higher monthly benefits for the rest of your life. If you die first, it will result in higher survivor protection for your spouse."

Therefore, most people who are in poor health and unlikely to live past 80 shouldn't delay taking benefits unless the spousal benefit is the major concern.

But if you do have a good life expectancy, delaying benefits reduces the risk of running out of money as you age. By delaying, you sacrifice current income in return for a higher income in the future, plus bigger COLAs.

How income annuities can plug the gap

An income annuity generates more income than just about any other vehicle, partly because each payment includes both interest income and return of your principal.

Even the latter is valuable because it's hard to find a liquid deposit that would let you withdraw that much from your account penalty-free each month while earning a competitive interest rate.

While most people buy lifetime annuities, you may choose a set income term from five to 20 years. This is called a "period certain income annuity."

Here's an example. Jane, age 63, retires and invests $200,000 in a seven-year immediate annuity so she can delay taking Social Security until 70. She lists her husband as the beneficiary so he will continue to receive any remaining payments if she dies before the seven years are up.

Today, Jane can buy an immediate annuity that will pay $2,776.77 per month, including $2,379.69 in tax-free return of principal and $397.08 of taxable interest.

After seven years, the annuity will end and have no cash value. But it will have done its job to provide substantial guaranteed income, most of it tax-free, to fill the income gap until her Social Security benefits begin.

Another option for Jane is to choose a MYGA (multi-year guarantee annuity), a type of fixed-rate annuity.

If she placed $200,000 in a seven-year MYGA, she could earn up to 5.75%, which would produce $11,500 of taxable income each year from a contract that allows the owner to withdraw interest without penalty.

Additionally, many MYGAs allow the owner to withdraw up to 10% annually, without penalty, so she'd have flexibility if she needs more money. (Some of these annuities pay a slightly lower interest rate.) Ask your adviser about the liquidity provisions of the annuity you're considering.

A MYGA produces less income but preserves her principal. If Jane receives all the interest the annuity produces but doesn't touch the principal, she'll get her $200,000 back after seven years.

Annuities are issued by life insurance companies and thus are not guaranteed by federal deposit insurance, so review the issuer's A.M. Best financial strength rating before buying.

Life insurers are tightly regulated by the states where they're domiciled and have a strong track record of meeting their obligations.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Most people have at least a little familiarity with annuities, which are attracting more attention.

Sales set a record for the first half of the year: $223.0 billion in total, up 3% from the same period last year and a record, according to LIMRA, an industry research group.

More people are concluding annuities are right for them. That doesn't mean an annuity is right for you. Different types of annuities do very different things. One type might fit your needs precisely, while another might not at all.

The best plan is to learn about annuities, decide if any might be right for you, then home in on which would be optimal.

Here are four key considerations.

1. Your age

Nonqualified annuities are funded with after-tax money. They're not held in an IRA, Roth IRA or other qualified retirement account.

These annuities offer one of the few ways to get powerful tax advantages with nonqualified savings. As long as you don't withdraw any interest or earnings from the annuity, you won't be taxed on it.

With tax deferral, your money can grow faster. With an IRA or 401(k), you must start taking distributions, knowns as RMDs, by age 73. With nonqualified annuities, there's no age requirement. You can let your money compound without taxes as long as you like.

Sound like a great deal? Sure. It's such a great deal, the government puts restrictions on it. Any withdrawals of annuity earnings before age 59½ are taxed and penalized.

With a few exceptions (such as for permanent, total disability), there's a 10% IRS penalty on withdrawals, along with regular income tax.

All accumulated interest must be withdrawn first before you can take out tax-free return of principal, according to IRS rules.

Because of that penalty, most annuities are bought by people who are in their 50s or older because they're already exempt from the penalty or soon will be. Age is an important consideration.

2. How much you have in savings and investments

With few exceptions, annuities aren't completely liquid. Those designed to build up your savings (deferred annuities), you'll pay a penalty to the issuing insurance company if you make an excessive withdrawal or cancel your policy during the penalty period.

With almost all income annuities, once the free-look period is past, you're committed and can't get your principal back. You're locked into a contract.

If you're considering an annuity, it's important to figure out how much access to your money you might need.

If your savings are minimal and you have a lot of credit card debt, you probably can't afford to lock up money in an annuity. You'll need unhindered access to your funds when expenses come up.

There's no magic number for the amount of savings you need to make a nonqualified annuity feasible, but you don't have to be wealthy. It depends a lot on your circumstances.

Can an annuity be a good idea if you have $250,000 total in savings and investments? You can probably move some of that safely into one or more annuities.

But people with less in savings can safely put money into an annuity. For instance, if you're retired and have a good stream of income from a pension, Social Security and perhaps other sources, you might be able to safely sock away some money in an annuity.

3. Your asset allocation

Annuities of all types (except variable annuities) are designed to reduce risk because they come with guarantees. Income annuities guarantee payments for either a set period or life. Fixed deferred annuities come in various flavors, but (except variable annuities) guarantee your principal.

If you're heavily invested in stocks and can afford to tie up some money in an annuity, it would make sense to use a fixed or income annuity to lower your risk and give you peace of mind.

4. Income generation

If you're retired or semiretired, or about to be, you might need to generate income, especially if you want to delay taking Social Security benefits to maximize your payout.

An immediate income annuity can be a great answer. Most people choose the lifetime option. This lets you create your own lifetime private pension and helps assure you'll never run out of money. It's "longevity insurance."

I'm a big advocate of income annuities, but I know they don't appeal to some people because you're signing over your money to an insurer in exchange for a stream of guaranteed income.

Those folks might want to use a fixed-rate annuity — a multi-year guarantee annuity or MYGA — instead to generate income.

A MYGA is a CD-like vehicle that provides a set rate for a set period, and rates are typically higher than bank CD rates for the same term. For instance, as of November 2025, you can get up to 6.30% on a five, six or seven-year MYGA. Most MYGAs allow penalty-free withdrawals of interest.

If you put $100,000 into a 10-year contract earning 5.75% with that feature, you'll receive $5,750 a year for the next 10 years. If you withdraw all the interest each year, you'll still get your $100,000 principal back at the end of year 10.

Flexibility is a big advantage. Let's say during years one to five, you need to take out all the interest.

In year six, you start receiving Social Security payments and no longer need the income. You can let the interest compound tax-deferred in the annuity for the remaining five years. After five years, the principal will have grown to $132,252.

Determining if an annuity might be right for you takes some thought and planning. Consider your situation in total, and if an annuity can help you meet your goals, act now.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income- annuity quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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• What You Don't Know About Annuities Can Hurt You
• How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Imagine moving a highly appreciated asset out of your taxable estate, locking in lifetime income for yourself and potentially saving your heirs millions in estate taxes.

That's the power of a private annuity sale — an advanced, yet simple and elegant estate tax-mitigation strategy used by sophisticated families and their advisers.

What is a private annuity sale?

A private annuity sale is a transaction in which you transfer an asset — such as a closely held business interest, investment real estate or a concentrated securities position — to an irrevocable dynasty trust in exchange for the trust's unsecured promise to pay you a fixed annuity for the rest of your life.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

There's no commercial insurer involved; it's a private arrangement, priced using actuarial life expectancy and an appropriate interest rate.

How it works

You sell the asset at its fair market value. In return, the dynasty trust commits to pay you a lifetime stream of payments calculated to be actuarially equivalent to that value, taking into account your age and prevailing rates.

From that point, all future appreciation accrues to the trust for your family. Because you receive only an unsecured promise to pay rather than retaining the asset, the transferred property and its post-sale growth are removed from your taxable estate, if properly structured and respected.

Why it can reduce estate taxes

Estate taxes apply to what you own at death. With a private annuity, you no longer own the transferred asset. You hold an annuity promise that generally has no value at death because payments cease when you do.

The result is that high-growth assets and future appreciation sit outside your estate, while you retain lifetime income. If the asset outperforms the assumptions used to price the annuity, that upside accrues to heirs without additional estate tax.

Here's an illustrative example. Assume you own $10 million of rapidly appreciating company stock. You sell it to a dynasty trust in exchange for a lifetime annuity priced at fair market value.

If you live to your actuarial life expectancy, you receive the economic equivalent of $10 million over time. If the stock grows to $16 million inside the trust, the $6 million of growth is outside your taxable estate, because you no longer own the shares.

Income and income tax features

The annuity provides predictable lifetime cash flow. Depending on basis and structure, each payment might be characterized among gain, return of basis and interest for income tax purposes.

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When the buyer is a grantor trust, income tax treatment can be streamlined in certain circumstances, aligning cash flow with wealth transfer goals. Careful modeling and coordination are essential.

Key considerations and risks

The trust must be financially able to make payments; the promise is unsecured. The annuity must be properly priced and documented to avoid gift or valuation challenges.

Longevity risk is inherent: A longer life means more payments to you; a shorter life shifts more value to heirs. Success depends on rigorous legal, tax, valuation and actuarial execution.

When it's a fit and next steps

A private annuity sale can be compelling if you hold high-growth assets, want lifetime income and aim to minimize estate taxes.

Work with a team of experienced estate planning lawyers, valuation experts and tax experts to structure, document and fund the transaction correctly.

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• New SALT Cap Deduction: Unlock Massive Tax Savings With Non-Grantor Trusts

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In the world of personal finance and retirement planning, few topics stir as much debate and misunderstanding as annuities.

Often shrouded in mystery and misconceptions, annuities can actually play a pivotal role in a sound retirement strategy. As a financial adviser with a pragmatic, conservative outlook, I've encountered numerous myths about annuities.

Let's debunk five common misconceptions and shed some light on the truth behind annuities and the benefits they offer.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Myth No. 1: Annuities are too complicated

The reality: Sure, the wide array of annuity products available in the market can seem overwhelming at first glance. However, with a bit of guidance and simplification, the concept of annuities is straightforward.

At their core, annuities are contracts with an insurance company. You pay them a sum of money (either as a lump sum or over time), and in return, they promise to pay you a regular income for a period of time — often for the rest of your life.

Understanding the basic types of annuities (fixed, variable and indexed) and their respective benefits can demystify them, making them a valuable tool in your financial arsenal.

Myth No. 2: Annuities are bad investments

The reality: Viewing annuities as "investments" in the first place is to misunderstand what annuities are. Seeing them as an asset comparable to stocks and bonds is to miss their purpose in your retirement strategy.

Annuities are, first and foremost, insurance products designed to provide guaranteed income. Comparing them to stocks or mutual funds is like comparing apples to oranges. They serve different purposes.

Annuities offer a unique blend of regularity and potential returns that is hard to find in traditional investment products, making them an excellent choice for conservative investors looking to protect their principal while enjoying a steady income.

Myth No. 3: You'll lose all access to your money

The reality: While it's true that annuities are designed to provide income over time, and that your principal investment is often illiquid, some annuity products do offer a certain degree of liquidity.

Features such as withdrawal benefits, death benefits and options for early access in certain circumstances (like medical emergencies) provide a measure of flexibility for some annuity holders.

It's important to carefully review the terms of your annuity contract and understand the conditions under which you can access your funds.

Study up on possible surrender charges for withdrawals, and be aware that withdrawals before age 59½ could trigger taxes and potentially a 10% federal income tax penalty.

With proper planning — including ensuring you have enough liquid funds held outside of your annuity — annuities can be a part of a balanced and accessible financial strategy.

Myth No. 4: Annuities are only for the wealthy

The reality: This couldn't be further from the truth. Annuities are incredibly versatile financial instruments that can benefit investors at various income levels.

They're designed to provide a steady income stream, making them an excellent choice for individuals looking to secure their financial future, regardless of their wealth status.

By allocating a portion of your savings into an annuity, you're essentially buying confidence in your financial stability for your retirement years.

Myth No. 5: Annuities don't make sense in today's economy

The reality: In an era of uncertainty, the guaranteed income offered by annuities is more valuable than ever. They can help protect against the effects of market downturns because they are not a market investment, and they are often able to provide an antidote to the risk of outliving your savings — a significant concern for many retirees.

Furthermore, certain types of annuities, such as indexed annuities, offer the potential for growth tied to market performance, with the added security of a guaranteed minimum return.

What annuities can mean for your retirement

As we navigate the complexities of planning for retirement, the priority shifts toward ensuring a stable and secure financial future.

One of the key benefits of annuities is that, with certain customizations, they can help you address the risk of outliving your savings by guaranteeing an income for life, regardless of how long that is.

This feature is invaluable, as it addresses one of the most significant concerns for retirees—the fear of outliving their savings.

Essentially, annuities can be viewed as a form of longevity insurance. By allocating a portion of your retirement savings into an annuity, you're securing a predictable income, much like a paycheck.

In some cases, that annuity can provide income regardless of how long you live or how the markets perform.

This consistent income can cover essential living expenses, allowing your other investments to grow or to be reserved for discretionary spending.

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Moreover, annuities can complement other retirement income sources, such as Social Security and pension plans, filling the gaps to ensure that your financial needs are met later in life.

They can be tailored to begin payments immediately or deferred to a future date, providing flexibility to align with your retirement timeline and income needs.

The confidence that comes from knowing you have a guaranteed income can free you to enjoy your retirement years more fully.

You can plan with greater certainty, embark on those long-postponed travel dreams, invest in hobbies or simply enjoy the day-to-day without the looming worry of financial instability.

Some caveats to consider

While some annuities come with no fees, others may have surrender charges, mortality and expense risk fees, sales and commissions and administration fees.

In addition, potentially pricey income riders can add to the expenses, diluting your investment.

The conservative investor's perspective

From a conservative standpoint, financial security and stability are paramount. Annuities can play a crucial role in a well-rounded retirement plan by offering guaranteed income, protection against market volatility and a safeguard against the risk of outliving one's assets.

They embody the conservative financial principles of risk management and preservation of capital, making them an attractive option for those seeking financial confidence in their retirement years.

Annuities are often misunderstood, but when properly integrated into your financial plan, they can offer the type of financial benefits many seek for their retirement.

By debunking these common myths, I hope to shed some light on how they can be used in a retirement strategy that prioritizes financial stability.

Like any financial decision, considering annuities should involve careful investigation and consultation with a fiduciary financial adviser to ensure they align with your overall retirement strategy.

In the end, the goal is to achieve financial security and a comfortable retirement, and annuities can be a valuable tool in reaching that objective.

In the realm of your retirement, where stability and security are prized above all, annuities stand out as a beacon of financial assurance. So, let's cast aside the myths and embrace the pragmatic, beneficial role these tools can play in securing our financial futures.

This material is intended for educational purposes only and is not intended to serve as the basis for any purchasing decision. Fixed Index Annuities are designed to meet long-term needs for retirement income, and they provide guarantees against the loss of principal and credited interest, and offer the reassurance of a death benefit for your beneficiaries. While no product fee is assessed on index options, limits are imposed on the upside performance through the use of caps, trigger rates, and/or participation rates. These limits can impose implicit costs.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It's official. President Donald Trump signed an executive order that could transform your 401(k) investment options.

For the first time, complex choices such as private equity, real estate, expanded annuities and even cryptocurrency may be added to your plan's menu.

These aren't the plain-vanilla mutual funds and index funds to which most of us are accustomed. They're bigger, flashier and at least on paper, full of promise.

But promise is one thing; reality is another. These products are generally more complicated, less flexible and often more expensive to own.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The executive order doesn't require your employer to offer them. But if they do, you'll need to be ready to navigate a very different and potentially riskier set of choices.

Why add these complicated investments to 401(k)s?

You can buy private equity, real estate funds or annuities outside your 401(k). Why the sudden push to add them to workplace retirement plans?

The pitch is simple: These investments promise the potential for higher returns than traditional stocks and bonds.

Private equity and real estate, for example, can offer access to private deals and growth opportunities not found in typical mutual funds.

Annuities, on the other hand, are marketed as a way to guarantee income in retirement — a kind of safety net for those who want steady, predictable cash flow.

However, these offerings are much harder to evaluate and even harder to escape. That makes them risky for the average saver who doesn't have a team of analysts at their side.

It's fair to ask who really benefits. The strongest push is coming from the companies that stand to profit, such as insurance firms, recordkeepers and investment managers.

These are the same entities that can charge higher fees and lock in long-term contracts with plan sponsors once these products are on the menu.

Surveys from these companies claim that savers want more choice. But the reality tells a different story: Fewer than 2% of 401(k) plans currently offer private equity or private credit, and many employers avoid adding annuities because they're complicated to explain, compare and manage over time.

The heightened risk of complexity

More investment options can sound like a win. But in retirement planning, more choice often means more homework and more ways to get tripped up.

Before you even think about investing, you'd need to understand exactly what you're buying, how it fits into your bigger retirement picture and what it's going to cost you.

These aren't mutual funds, which are relatively straightforward and easy to sell if you need cash. Private equity, for example, can be illiquid. You might have to lock up your money for years. The fees are often layered and harder to spot, which can quietly shrink your returns.

Annuities come with their own hurdles. Contracts can lock you in for a decade or more, and the terms are often so dense that even seasoned investors struggle to compare one product to another.

Even if an annuity's promise of lifetime income sounds appealing, that doesn't mean it's the right fit for your retirement goals.

Here's the bigger concern: Are employers equipped to evaluate these products in the first place?

As fiduciaries, 401(k) plan sponsors are supposed to act in participants' best interests. But many lack the expertise to dig into these complex investments, monitor them over time and make sure they truly belong in your plan.

How will you make informed decisions?

It's important to remember that you already have ways to access these investments without complicating your 401(k).

If you have a Roth 401(k), you can take tax-free withdrawals after age 59½.

With a traditional 401(k), you might qualify for an in-service withdrawal after 59½, which lets you roll funds into an IRA.

Even if your employer decides to add these investment options to your 401(k), you're the one who must decide whether to use them.

Plan providers can explain how an option works, but they're not looking at your full financial picture, including your tax situation, your spouse's benefits, your other investments or your retirement goals. Their job is to educate, not advise.

That's why it's worth thinking about how you'll evaluate any new choices that appear in your plan.

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In some cases, you might decide it's better to keep things simple. In others, you might choose to move part of your savings outside the plan through an IRA rollover or in-service withdrawal after age 59½.

An IRA typically offers a broader range of investments, including private equity and annuities, on your terms, not your employer's.

This way, you get more control over your retirement dollars without adding unnecessary complexity to your workplace plan.

The point isn't to say "no" to every new feature. It's to make sure you understand exactly how it fits into your strategy before you say "yes."

Proceed with caution

Just because something shows up on your 401(k) menu doesn't mean it belongs on your plate.

Private equity, real estate and annuities can have a place in some retirement plans, but they're not a free upgrade. They come with trade-offs in cost, flexibility and transparency that you need to weigh carefully.

Saving for retirement is a long game. It's easy to get distracted by what's new and shiny, especially when it's framed as an "opportunity."

But your 401(k) should always be built around your goals, your timeline and your comfort with risk, not whatever product just became available.

If you're unsure, this is the time to get a second opinion. Talk to a fee-only fiduciary adviser. That's someone who works for you, not for the companies selling these products. You get advice without the sales pitch or hidden agenda.

The executive order might expand what's possible in a 401(k). Whether that's good for your retirement depends entirely on how, and if, you choose to use it.

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• Five Things I Wish I'd Known Before I Retired

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

The One Big Beautiful Bill (OBBB) gives most people 65 and older a new deduction on their federal income taxes starting in 2025.

But to get the full or partial amount, you can't exceed the income limits. For some older adults, it can thus make sense to reduce their taxable income to get under the limit.

Through 2028, eligible taxpayers 65 and older can get an additional $6,000 deduction (or $12,000 for a married couple if both spouses are 65). This is in addition to the standard deduction for all taxpayers and the extra deduction for older adults.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The full deduction applies to individuals with a modified adjusted gross income (MAGI) up to $75,000 and joint filers with MAGI up to $150,000. The deduction is reduced by 6 cents for every dollar above the threshold.

For couples filing jointly, the deduction is fully phased out at $250,000. For single taxpayers, the deduction fully phases out with MAGI above $175,000.

For older people with lower or moderate incomes, the new deduction will help in two ways. First, it's an additional deduction that will benefit the majority of older adults who do not itemize their deductions.

Second, for those whose income is low enough, it will help reduce the tax on their Social Security benefits, in some cases to zero.

How Social Security benefits are taxed and why it matters

The percentage of your Social Security benefits that are taxed is determined by your "combined income." To calculate it, add up your adjusted gross income (AGI), tax-free interest from municipal bonds if any, and 50% of your Social Security benefits.

Married couples with less than $32,000 of combined income pay no income tax on their benefits. Couples earning between $32,000 and $44,000 have up to 50% of their Social Security benefits subject to federal income tax.

Those making more than $44,000 pay income tax on up to 85% of their benefits. For singles, the thresholds are $25,000 and $34,000.

The new deduction can lower your taxable income and thus your combined income. It's estimated that 90% of older adults will now pay no federal income tax on their Social Security benefits. Some other older adults will still pay the tax but at a lower rate.

Reduce taxable income with a nonqualified deferred annuity

If you're on the threshold of being able to benefit from the new deduction for older people, consider ways to reduce your taxable income to become eligible.

There are many ways to do that, but buying one or more deferred annuities is a straightforward, dependable method that has other benefits. As we'll see, this strategy can be used for both "nonqualified" money and IRAs.

A nonqualified deferred annuity is one that's held in a nonqualified account instead of a qualified account, such as an IRA, Roth IRA or 401(k). Nonqualified variable, fixed, fixed index and deferred income annuities can all help reduce current income and taxes.

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As long as you don't withdraw any interest or gains from an annuity, you won't be taxed on it. You can defer taking out interest as long as you like.

Here's an example. Let's say you have $150,000 in funds to invest, and you want to put them in a guaranteed account. You could buy a bank certificate of deposit (CD). As of early August, the top rate for a five-year CD was 5.5%, meaning it would produce $8,250 of taxable income each year.

If you don't need that income for living expenses, you could place the $150,000 in a five-year multi-year guaranteed annuity (MYGA) instead. That would reduce your taxable income by $8,250 in 2026 compared to the CD.

Additionally, such a product, which acts much like a tax-deferred CD, produces more interest income because you could get up to 5.85% on your money and earn $8,775, tax-deferred.

Let's say this is a couple whose "combined income" would be $158,250 if they bought the CD. Since they're over the income limit, they'd get a partial reduction of the new credit for older people.

In contrast, the annuity would bring their income down to $150,000, and they'd get the full $12,000 deduction as well as reducing other federal and state income taxes.

In this way, a couple or an individual with a more modest income might be able to use an annuity to cut their income so they'd be eligible for the full deduction for older people, which would reduce their combined income so that they'd potentially pay no tax on their Social Security benefits.

An annuity that defers RMDs and cuts taxes

Everyone must start taking taxable required minimum distributions (RMDs) from their IRA, 401(k) plan or other qualified retirement plan when they reach age 73.

The only feasible way to defer some RMDs is to transfer a portion of your retirement-plan assets to a qualified longevity annuity contract (QLAC). The money in one is excluded from plan assets on which RMDs are calculated.

A QLAC is a special lifetime deferred income annuity that meets IRS requirements. It lets you keep more of your retirement plan intact and tax-deferred longer.

You can place up to $210,000 in one or more of them. You must start taking taxable income payments from a QLAC at 85, but you may begin sooner.

To purchase a QLAC, you transfer funds from your IRA or 401(k) or other eligible retirement plan to a life insurer. This single premium funds the QLAC. Since the transfer is from one plan custodian to another, it's tax-free.

Suppose you place $150,000 in a QLAC at age 73 and defer payments until age 80. That $150,000 is now removed from your annual RMD calculation. By reducing your current RMD income, you might be able to get all or a greater portion of the temporary credit for older people.

If you need your entire RMDs to cover expenses, you won't be able to use this plan. But you can buy a QLAC with as little as $10,000.

The other big advantage of the QLAC is that it's a lifetime annuity that guarantees a level income as long as you live. You can choose an individual or a joint lifetime payout, with the latter paying out income until the second spouse dies. The joint payee must be a spouse.

The additional deduction for older people is scheduled to end after the 2028 tax year, so it can be a good move for certain people to defer some income for the current tax year and the next three.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-rider quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

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• Why Annuities Sometimes Sound Too Good to Be True

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

If you're exploring ways to guarantee income in retirement, you've probably come across annuities. What you might not know is that many people are buying them today without ever walking into an adviser's office.

Thanks to a rise in virtual tools, annuity purchases that once required thick paper contracts and in-person meetings can now be completed online, sometimes in under an hour.

But just because it's fast and convenient doesn't mean it's simple.

Here's what to know before you click "Buy Now" on a product that could affect the rest of your life.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Why people are buying annuities online

Retirement-age consumers are increasingly comfortable with making financial decisions virtually. That trend has opened the door to online annuity quotes, illustrations and purchases, delivered through secure digital platforms, video calls and apps.

Some of the benefits of buying annuities virtually include:

• Convenience. There's no need to schedule in-person meetings or deal with paper forms. You can review options and apply from home
• Speed. With apps and e-signatures, it's possible to go from interest to issued policy within days
• Education-first experiences. Many advisers use screen sharing, retirement income calculators and interactive tools to walk you through how each annuity works before you commit

In short, buying an annuity online isn't just about skipping the office visit. It's about making a complex process more transparent and personalized.

What to look for in a virtual annuity experience

A good digital experience should feel thorough, not rushed. Just because something's virtual doesn't mean it should be vague. Here are four signs you're working with a professional, not a product pusher:

1. They start with education, not a sales pitch

A trustworthy adviser will walk you through the basics of how annuities work, the pros and cons, and when they're most useful in retirement.

Look for someone who screens to make sure an annuity is appropriate for your situation, not someone who jumps straight to a specific product.

2. You get a custom illustration

You should receive a detailed breakdown of how the annuity would perform based on your age, investment amount, timeline and goals.

For example, how much guaranteed income would you receive starting at age 67 if you invested $100,000 today? Can you add an income rider? What are the fees?

3. You're encouraged to ask questions (and sleep on it)

A red flag in virtual sales is pressure.

Annuities are long-term contracts. It's reasonable (and wise) to take a few days to think through your options, compare illustrations and talk to a family member or certified public accountant (CPA).

4. The application process is secure and transparent

Most virtual annuity applications happen through encrypted portals and require identity verification.

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If you're being asked to send sensitive documents over unsecured email or fill out handwritten forms, consider looking elsewhere.

Common types of annuities you can buy virtually

While virtually all types of annuities can now be sold online, these are some of the most common in virtual retirement income strategies:

Fixed indexed annuities offer growth potential linked to a market index, with downside protection. Popular for clients who want income and principal safety.

Immediate annuities convert a lump sum into guaranteed income right away — ideal for retirees needing income now.

Deferred income annuities lock in future income starting several years from now.

Multi-year guaranteed annuities (MYGAs) function like CDs with higher fixed interest rates over a set term, often used for short-term stability.

Each type comes with different fees, benefits and liquidity rules, so you'll want to see side-by-side comparisons.

Questions to ask before you buy

Before finalizing a virtual annuity purchase, make sure you get clear answers to these questions:

• How is the adviser compensated? Commission, flat fee or both?
• Are there surrender charges if you need to access your money early?
• How is income calculated, and are there guarantees regardless of market performance?
• What riders are included or optional (e.g., income, long-term care)?
• What happens to the money when you pass away?

If the adviser can't answer these questions (or dodges them), that's your cue to find someone else.

The bottom line

Annuities can be a powerful retirement income tool, and virtual platforms have made them more accessible than ever. But easy doesn't mean effortless. Take time to learn the basics, review multiple options and partner with someone who puts education first, not a quick sale.

A good virtual annuity experience should make you feel more informed, not more confused. With the right guidance, you can lock in income for life without ever leaving your couch.

Related Content

• Kiplinger Readers' Choice Awards 2025: Annuity Providers
• How Much Income Can You Get From an Annuity? An Annuities Expert Gets Specific
• Should You Add an Annuity to Your Retirement Portfolio?
• What You Don't Know About Annuities Can Hurt You
• I Want to Buy an Annuity, But I'm Scared I'll Get Ripped Off. Should I Get One Anyway?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In my previous article, I detailed how much income you can get from an immediate or deferred income annuity. This article will cover how much income a fixed indexed annuity with a lifetime income rider can produce.

A fixed indexed annuity is a type of deferred annuity that credits interest based on the changes to a market index, such as the Dow Jones Industrial Average or S&P 500. Interest is credited when the index value rises, but when it falls, you lose nothing.

In exchange for that guarantee, you'll typically get only part of the market's gains. Over the long term, an indexed annuity should outperform fixed-income vehicles, such as bonds, but underperform stocks, though with much less volatility.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

When you annuitize a more traditional fixed-rate annuity, such as a multi-year guarantee annuity (MYGA, also called a CD-type annuity) or a variable annuity, you no longer have access to your money.

Annuitization means the insurance company is converting your annuity contract value into a stream of income, and in exchange for that, you normally no longer have any cash surrender value.

I believe that creating your own private pension is often a great move. But many people are leery about turning over their savings in exchange for future income.

An indexed annuity with an income rider avoids that disadvantage because you can guarantee a lifetime income and still have control over any remaining annuity balance.

It's a kind of have-your-cake-and-eat-it-too approach, but of course, there is no "free lunch."

You also usually retain complete flexibility about when you start receiving income. You can even stop receiving income and still access any remaining balance in your policy.

How the income rider works

The income rider on a fixed indexed annuity creates the "income account value." It is based on the amount of money you deposited in the annuity, usually growing at some predetermined annual rate.

The rider is a calculating factor that helps determine the amount of your guaranteed income payments. It's separate from the underlying contract value. It has no cash value and cannot be withdrawn. But it is real with regard to your income calculation.

With the rider, your income account value typically grows at a guaranteed annual compounded rate of 4% to 8%. This explains the somewhat misleading ads promising an 8% guaranteed rate on an annuity. They don't tell the whole story.

Since you don't set the date in advance for income payments to start when you buy the annuity, you retain planning flexibility. You can choose to start receiving lifetime income, typically beginning at age 55 or later, for just yourself or you and your spouse.

The longer you delay taking payments, the greater the income.

Your future monthly lifetime payments are determined by three factors:

• Your income account value
• Your gender
• Your age when you start taking payouts

Different insurers use different actuarial calculations. Therefore, you could get significantly more or less income from different insurers even when all other things are equal.

After the income starts, payments are deducted from the contract value. If that value ever reaches zero, annual income payments are still guaranteed for the remainder of your lifetime, but the annuity will no longer have any cash surrender value.

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If you die before income activation, your beneficiaries will receive the full annuity contract value as a death benefit. If you die after income activation, the income payments will cease, and your beneficiaries will receive any remaining annuity contract value.

The rider has a lot of advantages, but there is usually a cost. For instance, it may cost 1.00% to 1.25% per year to guarantee a 7% to 9% annual income account value increase on the income rider.

This fee will be subtracted from your account value, and though seemingly modest, it can add up over time.

How much income — an example

A 55-year-old man deposits $200,000 into an indexed annuity and names a joint payee — his wife, also 55. She would keep receiving income if she outlives her husband.

Their income payments will begin at age 70. The current estimate is that lifetime income payments will be $37,392 per year. If they instead decide to start receiving payments at age 75, the figure increases to $46,663 per year.

Waiting till 80 would produce an estimated $50,758 a year.

Is an income rider worth it?

There's no easy answer because individual circumstances vary so much. Independent experts agree that most people should annuitize a significant part of their savings to ensure they'll never run out of money.

But people who have ample employee pensions and Social Security benefits may not need additional guaranteed income. Since the insurance company typically charges an annual fee for the income rider, it's not a good buy unless you're fairly sure you'll use it eventually.

But if you do want to reduce your risk and gain the peace of mind provided by guaranteed lifetime income, it's well worth investigating this innovative strategy and carefully comparing it with other options, including an immediate or deferred income annuity as discussed in my previous article.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. The firm also offers an income-rider quoting service. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

Related Content

• Annuities: What They Are and How They Work
• Confused by Annuities? Making Sense of the Different Types
• Why Annuities Sometimes Sound Too Good to Be True
• I Want to Buy an Annuity, but I'm Scared I'll Get Ripped Off. Should I Get One Anyway?
• Watch Out for Annuity Surrender Charges: How to Avoid Them

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Retirement planning has to change. We're living longer. Social Security is under pressure. Long-term care is costly and getting even more expensive.

Think of your retirement savings as not only your 401(k), IRA and other qualified savings, but also the value of your home. And forget about rules of thumb. Think instead about refinements that make your plan your own.

What's your base plan?

In my previous two articles — Your Home + Your IRA = Your Long-Term Care Solution and What if You Could Increase Your Retirement Income by 50% to 70%? — I described IRA4Income, which delivers more income to meet budgeted expenses along with liquid savings to enable, for example, the coverage of typical long-term care costs.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

We explained how to achieve these results by using financial products that are "off the shelf":

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately (single premium immediate annuity, or SPIA) or in the future (qualified longevity annuity contract, or QLAC)
• A home equity conversion mortgage (HECM) that generates income and liquidity

Those pieces aren't exotic, but with our approach, called IRA4Income, we provide an individual with a "base plan" built around an allocation among and between asset classes, put in place with economic assumptions, such as:

• Rates of return on investments
• Personal planning choices, such as the percentage of increase in income
• Current interest rates based on a survey of annuity and HECM contracts

To measure the value of this planning model, we compared our results to two ends of the retirement spectrum:

• A single premium income annuity (SPIA) that would provide all guaranteed income but no liquid savings
• Investment-only plans with no guaranteed annuity income

Both of those and IRA4Income are based on a consistent set of assumptions.

While quite different in design but with consistent assumptions, the IRA4Income plans provide high starting income, they continue for life, and they have liquid savings late in retirement when the money will most likely be needed to cover long-term care.

Why do you personalize?

As the results below show, a base IRA4Income plan provides attractive results in the two areas we're working to improve: starting income and liquid savings at age 90.

Once you have a base plan that delivers the income and liquid savings, an adviser can help you modify it to better meet your personal objectives. The answer, unlike certain planning methods, is not simply to spend less.

Below, I provide examples of plan modifications, again with an emphasis on starting income and liquid savings.

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How do you personalize?

You can adjust income. A relatively simple way to adjust your starting and ongoing income is to revise the inflation protection assumption. Set out below is an example at different ages of what a change in the percentage increase can provide.

You can manage risk. In refining your plan, do you assume lower or higher assumed rates of return? If you aim for the high starting income you may want to use the base plan assumption of 8%, or a lower rate if you want to take less risk. The differences are shown here.

You can manage your legacy. Annuities are an important tool to create lifetime income in a plan. One feature of these lifetime annuities can be a payout to your beneficiary. You may want to provide beneficiary protection on early passing, as evidenced in the following table.

You can minimize taxes. Retirees who use just one source of savings to fund their retirement — their IRA or 401(k) — will pay taxes when distributions are made. Drawdowns from a HECM line of credit are not taxable and provide some tax benefit.

If taxes are a major consideration, you might consider using a portion of personal (after-tax) savings and reduce taxable portion, as seen here.

Now, create your options

The benefits of IRA4Income include increased income and more liquid savings. This combination of your IRA and your home can increase your income from your IRA-based planning by 50% to 75%.

While that increase sounds great, you have the ability to easily stress-test those results and anticipate long-term care or other events that can be planned for.

To get started, order an IRA4Income base plan as a great starting point for future refinements like those mentioned above.

Related Content

• What the HECM? Combine It With a QLAC and See What Happens
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Are you thinking about buying an annuity, but you’re worried you’ll make a mistake and lose money? Then you’re not alone. Annuities are complex, costly, and after a short window, are permanent.

Plus, not every annuity seller has your best interest at heart. Unscrupulous salespeople can charge you extra fees or sell you products that aren’t in your best interest, so it's understandable if you are worried.

But that doesn’t mean you should avoid annuities altogether. For certain individuals, annuities can be a way to get guaranteed income in retirement. It's one of the main reasons annuity sales topped $100 billion in the first quarter of 2025.

With that in mind, here is a look at when it makes sense to buy an annuity and how you can prevent yourself from getting ripped off if you do decide to purchase some guaranteed income via an annuity.

Annuity purchases: when it makes sense

If you have access to an annuity through your employer-sponsored retirement plan, the decision is easier. The product is already vetted through your company’s plan sponsor, so you don’t have to worry about shopping around.

Timothy Pitney, head of lifetime income default sales at TIAA, says it's typically cheaper than purchasing it in the retail market. “They don’t come with a lock-up or a commission that you find in retail,” says Pitney. “There’s fiduciary oversight. Often, these plans have consultants helping them. They tend to have much higher quality products than what you find in the retail space.” While that segment is growing, not every 401(k) or 403(b) plan offers it.

If you don’t have access to one through your 401(k) or 403 (b), ask yourself why you want to purchase an annuity in the first place before you begin your search, said Douglas Ornstein, director, wealth management coach at TIAA Wealth Management.

“You want to think about annuities as a retirement instrument primarily as opposed to purely an investment instrument,” says Ornstein. “You want something low-cost. It’s not a place to get a bunch of bells and whistles," or expect a big return on your investment.

Annuities make the most sense for people who want guaranteed income in retirement and are worried they will run out of money during their golden years. With an annuity, you enter into a contract with an insurance company and make payments over a specified period. That money is invested and paid out to you at a later date, either as a lump sum, monthly, or annual payments over your lifetime.

Annuities are also well-suited to individuals who want to play it safe but want a better return than bank CDs. Fixed annuities tend to outperform bank CDs because they are held longer, giving the insurance company more time to invest and grow the money.

Annuities can also make sense for people who want to supplement their Social Security benefits as part of their retirement, or as a bridge until they can claim Social Security if they retire early, says Ornstein. Annuities can also be used to pay for the aging process or long-term care costs, he says.

“Sometimes you’ll hear of people buying annuities because they are scared about the markets. That may be a good reason if you have a diversified, holistic financial plan in the context of a broader goal,” he says.

How to prevent yourself from getting ripped off

Once you understand why you are purchasing an annuity, you have to ensure you’re purchasing one without getting ripped off. That’s where education comes in. The phrase knowledge is power couldn’t be truer when it comes to shopping for a retail annuity. Understanding the types of annuities and all the costs is key.

Types of annuities

There are several types of annuities, but the main ones include:

-Fixed annuity: Payments are made monthly for the same amount. With a fixed annuity, you know exactly how much you’ll receive monthly.

-Variable annuity: The payouts are tied to the rise and fall of the underlying investment.

-Indexed annuity: The payouts are tied to the performance of an index such as the S&P 500.

-Immediate annuity: Payments are typically made as a lump sum. You then begin receiving payments in 12 months or less. An immediate annuity can be fixed or variable.

-Income for life annuity: Payouts are for life, no matter what age you live to. The size of the payments depends on the account size and the life expectancy of the person holding the annuity. This type of annuity can be fixed or variable.

Annuity costs and fees

As for annuity costs, be mindful of these:

-Commissions: This is the fee that goes to the agent you work with to purchase an annuity. The commission varies based on the type of annuity and its complexity. The more complex, the higher the commission will be. It can range from 1% to 8%, according to Annuity.org.

-Administrative fees: These are the fees that cover the cost of managing the annuity, recordkeeping, and processing transactions, in addition to other administrative costs. This fee is typically under 0.3% of the value of the annuity each year.

-Surrender charge: A penalty that’s deducted from the account value if money is withdrawn from the annuity prematurely. The surrender charge can vary based on the insurance company, the age of the annuity, and the amount withdrawn.

-Rider: These are additional benefits you can add to your annuity for a fee. Common types of annuity riders include living benefits and death benefits.

Consider professional help from a financial adviser

When shopping for annuities, Ornstein encourages clients to ask advisers and salespeople what conflicts of interest they have, how they are compensated, and whether or not the adviser is a fiduciary. A fiduciary doesn’t get paid by the insurance provider and therefore doesn’t have any incentive to recommend one annuity over another. An annuity broker may. Therefore, it's important to find this out before purchasing an annuity.

While you can purchase an annuity via a marketplace, annuities should be integrated into your broader financial plan. Therefore, working with a financial adviser may be your best option.

“While an annuity specialist may have expertise in annuities, that might not be the same person who can take a holistic look at an individual’s short, medium, and long-term goals,” says Ornstein. “Many things go into a comprehensive financial plan. I would encourage clients to talk to a holistic financial adviser first and see if an annuity is right for them.”

Don’t lose sight of the goal

At the end of the day, when considering if you should purchase an annuity, don’t lose sight of the end goal: managing risk in retirement. The key is to have a diversified income stream that addresses the four risks you’ll face: market risk, longevity risk, cognitive risk and annuity risk.

“That doesn’t mean put all your money into an annuity,” says Ornstein. “It means having a broad, diversified strategy for taking income. An annuity should be a strong consideration.” But it might not be the be-all end-all.

Related content

• Should You Add an Annuity to Your Retirement Portfolio?
• Are Annuities the New Safe Haven?
• Annuity Payouts: How Much Can You Get Each Month?

How much income will an annuity produce today? It's a straightforward question, but the answer gets a bit complicated.

However, it's just a matter of comparing and selecting annuity options, plugging in the right information, then shopping for the best deals.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

The amount of monthly income depends on:

Timing. You can choose payments to start now or in the future.

Age and gender of the annuitants (the individual or individuals who will receive the income) at the time payments start.

Policy features. Do you want your heirs to get cash back if you die before the annuity has repaid the premium deposit you paid? If so, you would choose the cash-refund option. Another key choice is whether you select a lifetime payout or a set term, such as 15 years.

Number of annuitants. Will the annuity cover one life or two (usually a husband and wife)?

The insurance company you choose. Life insurance companies underwrite annuities, and it's a competitive market. Some deals are significantly better than others.

Type of annuity. An income annuity is a contract that produces only income. This type produces the most income because it doesn't normally have any cash surrender value, and a portion of the payments during the initial years includes the return of your own money.

Annuities pay more now than they did a few years ago because interest rates have shot up. Insurers invest annuity premiums mostly in high-quality bonds, mortgages and dividend-paying stocks.

This article covers only income annuities. In my next article, I'll show how much income you can get from multi-year guaranteed annuities (MYGAs) and indexed annuities.

Below are some examples that should provide a good idea of how much income you can get in the current market.

Immediate income annuity examples

With an immediate annuity, you'll typically start receiving monthly payments within about a month of purchase, but you can delay them up to a year. The examples here assume you'll start payments immediately.

Here's what you can get, as of June 2025, for a $200,000 premium deposit of nonqualified funds (money that's not in your IRA or other qualified plan). These examples are based on the highest-paying companies in our database.

Single-life payout, lifetime annuity, male age 65, no cash-refund option

The monthly lifetime income is $1,314.39, which includes $481.06 of taxable income and $833.33 of nontaxable return of principal.

After 20 years, at age 85, he will have recouped his initial premium deposit, and the income will become fully taxable.

With the cash-refund option, the monthly income would be less — $1,256.36.

Lifetime payments are the most popular option for good reason: They provide longevity insurance. Payments continue at the same level for as long as you live, even after the insurance company has repaid the entire principal.

Sometimes, there's a good reason not to take lifetime payments and get a higher income for a shorter period. The buyer might know he'll get a large inheritance or be able to tap a generous pension within the next 10 years.

Instead of a lifetime annuity, he chooses a 10-year period-certain annuity, which would pay $2,067.56 a month.

This type of annuity guarantees income for the entire term. If he dies after six years, for example, his beneficiary will get the income for the remaining four years.

Joint-life payout, lifetime annuity, male age 65 / female age 65, no cash-refund option

With the joint-life option on a lifetime annuity, payments will continue as long as one spouse is alive. Monthly income is $1,151.48, of which $484.77 is taxable and $666.71 is nontaxable.

After 25 years (at age 90) the initial premium deposit will have been repaid, and payments will become fully taxable.

With the cash-refund option, monthly income would be $1,136.31.

Deferred income annuity examples

With a deferred income annuity, you can choose when you want your payments to start, as long as you begin taking them by age 85.

You'll get a larger income by deferring them, but, of course, you won't be collecting them for as long. Again, we're assuming nonqualified funds.

Single-life payout, lifetime annuity, male age 65, no cash-refund option, income deferred to age 75

Monthly lifetime income will be $3,124.36. This includes $1,791.03 of taxable income and $1,333.33 of nontaxable return of principal. After 12½ years, at age 87, he will have recouped his initial premium deposit, and the income will become fully taxable.

With the cash-refund option, monthly income would be $2,841.67.

Joint-life payout, lifetime annuity, male age 65 / female age 65, no cash-refund option, income deferred to age 75

Monthly lifetime income payment will be $2,359.77 ($1,349.67 taxable; $1,010.10 nontaxable).

After 16½ years (at age 91), the couple will have recouped their initial premium deposit, and payments will become fully taxable.

With the cash-refund option, monthly income would be $2,328.43.

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What about inflation?

Income annuities typically offer set payments, so there's a risk that future income might not be adequate many years from now if inflation runs high.

One way to counteract this is to buy a bigger benefit level, especially if you're choosing a deferred income annuity, in which the funds grow untouched until payments begin. That's the simplest approach.

Another way is to buy an inflation-adjusted annuity. You can buy a fixed annual percentage increase or choose an annuity that adjusts payments based on annual changes in the consumer price index.

Of course, in return for inflation protection, you'll get lower initial payments for the same deposit.

Joint-life payout, male age 65 / female age 65, no cash-refund option. Income deferred to age 75. Inflation-adjusted annuity that provides a 2% annual increase in the monthly income amount after payments have started.

Monthly lifetime income payment will start at $2,010.20 ($1,147.79 taxable; $862.41 nontaxable). After 20 years, at age 95, the monthly income amount will have grown to $2,987.05.

Joint-life payout, male age 65 /female age 65, no cash-refund option. Income deferred to age 75. Inflation-adjusted annuity that provides a 3% annual increase in the monthly income amount after payments have started.

Monthly lifetime income payment will start at $1,846.48 ($1,051.29 taxable; $795.19 nontaxable). After 20 years, at age 95, the monthly income amount will have grown to $3,334.95.

To determine if an inflation-adjusted income annuity is right for you, you need to make assumptions about your expected longevity.

You should also make a detailed analysis to compare a level-pay income annuity to an inflation-adjusted annuity to determine at what age the inflation-adjusted annuity crosses over and provides more total benefits.

Level-pay annuities typically look more attractive in the earlier years. But if you live a long life, the inflation-adjusted annuity can provide better total payouts if you're willing to wait that long.

As you can see, income annuities offer many options, and the payouts vary dramatically. These unique vehicles, especially lifetime annuities, can uniquely provide peace of mind and assurance that you'll never run out of money, no matter how long you live.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. He is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling 800-239-0356. There are no fees or charges for the firm's services; 100% of the client's money goes to work for them in their annuity.

Related Content

• What You Don't Know About Annuities Can Hurt You
• How Are Annuity Withdrawals Taxed?
• Five Things About Annuities That May Surprise You
• A Financial Adviser's Defense of Annuities: They're Just Misunderstood
• Should You Add an Annuity to Your Retirement Portfolio?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In today's high-rate environment — where 5%-plus interest rates feel more like the norm than the exception — the retirement income playbook is being rewritten.

Gone are the days when the 60/40 portfolio and the trusty 4% rule provided enough confidence to sleep soundly at night.

Instead, retirees and near retirees are turning to more engineered strategies for dependable income — ones that blend structure, flexibility and peace of mind.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Two key tools leading the charge in 2025: the modern bucket strategy and — brace yourself — the much-debated A word, annuities.

Let's talk about the A word

Annuities tend to stir strong opinions, kind of like pineapple on pizza or which way to hang the toilet paper. Some folks swear by the predictability they provide, while others grimace, often due to outdated advice or poor past experiences.

But annuities have evolved. When used as part of a personalized plan — not as a standalone product — they can help address some of retirement's trickiest problems: longevity risk, market volatility and the ever-creeping cost of living.

The challenge? Sorting through the noise to figure out where they fit.

That's where we come in.

Three reasons to use the A word

Turning assets into a paycheck. Retirement isn't just about growing a portfolio — it's about turning it into income.

If a retiree gets $5,000 a month from Social Security but needs $8,000 to cover expenses, that $3,000 gap could be filled with an annuity providing guaranteed lifetime income.

At today's rates, a 67-year-old might need about $480,000 in IRA assets to generate that income for life. That's retirement income engineering in action.

Building inflation resilience. Today's fixed indexed annuities often offer market-linked growth options that can adjust your income upward over time.

That means your paycheck has a shot at keeping pace with rising costs, which is especially important in a retirement that could span 30 years or more.

Reducing emotional risk. Markets go up and down, but bills don't wait. Annuities provide a steady stream of income that can reduce the urge to panic-sell during downturns.

For risk-averse retirees, knowing a portion of their income is guaranteed can help them stay invested (and sane).

Reasons to be cautious using the A word

As powerful as annuities can be, they're not magic. Here are a few caveats:

Overconcentration limits flexibility. While many annuities allow for limited penalty-free withdrawals (usually 5% to 10% annually), they aren't nearly as liquid as brokerage accounts. Putting too much into annuities can leave you cash-strapped when flexibility matters most.

Misplaced in a Roth IRA. Roth IRA accounts shine when used for high-growth investments. Using them for slow-growing annuities can water down their tax-free potential.

Misaligned expectations. If you want stock market-level returns without risk, you might be disappointed. Most income annuities offer moderate returns (think 3% to 5%) in exchange for guaranteed income.

Buying without a plan. Annuities should never be bought in isolation. They work best when integrated into a broader financial strategy that accounts for taxes, withdrawal sequencing and long-term income needs.

Modernizing the bucket strategy in 2025

Think of bucket strategies as the plumbing of your retirement plan — efficiently delivering water (income) where and when you need it.

In 2025, bucket planning has grown up. The basic framework still stands — dividing assets based on when you'll need them — but the tools and tactics have gotten smarter.

Here's a breakdown:

• Bucket one: Immediate needs (years zero to three)
  This is your faucet. Think cash, money market funds or short-term CDs. It covers the bills without forcing you to sell investments during market dips.
• Bucket two: Near-term growth (years three to seven)
  Picture this as your refill tank. It might hold short-term bond ETFs, TIPS or balanced funds — assets with moderate risk designed to replenish bucket one as needed.
• Bucket three: Long-term growth (years seven-plus)
  This is your reservoir — slow to fill, but critical during dry spells. Stocks, real estate and diversified ETFs live here. They're designed to grow and refill the other buckets over time.

Visualize your retirement plan as a three-chamber water tank. Chamber one feeds your daily faucet. Chamber two flows into chamber one during dry periods. Chamber three fills slowly but keeps the entire system running long term. That's the magic of a well-engineered bucket plan.

Where buckets and annuities work together

This isn't an either-or situation. Some of the best retirement income plans use both annuities and buckets in tandem.

Annuities can serve as a reliable foundation, ensuring essential expenses are covered no matter what the markets do.

Meanwhile, the bucket strategy provides structure, flexibility and growth potential to handle everything else.

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Used wisely, annuities can fund the first bucket (income now), while the rest of the portfolio focuses on growth and future needs.

It's a "belt and suspenders" approach — redundant by design but comforting when times get rough.

What you can do now

If you're nearing or already in retirement, here are three steps to help engineer more reliable income in today's interest rate environment:

Quantify your income gap. Add up guaranteed income (such as Social Security or pensions) and compare it with your monthly needs. Knowing your gap helps determine whether you need an annuity or just a smarter withdrawal plan.

Reassess your buckets. Are your short-term needs covered with safe, liquid assets? Are your long-term assets still positioned for growth? Review your allocation based on your spending timeline and today's higher yields.

Stress-test your strategy with a fiduciary. Work with an adviser to model different outcomes for market crashes, inflation spikes and longevity. A fiduciary can help integrate annuities, buckets and tax strategies into a cohesive plan — not just sell you products.

Final thoughts

Retirement planning in 2025 isn't about chasing returns or clinging to old rules. It's about building a system — an income engine — that balances predictability, flexibility, and peace of mind.

Annuities and bucket strategies can be two powerful tools in that system. Used together, they help answer the question every retiree faces: "Will I have enough — and will it last?"

With the right plan in place, you won't just retire, you'll retire with confidence.

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

Related Content

• Should You Add an Annuity to Your Retirement Portfolio?
• A Financial Adviser's Defense of Annuities: They're Just Misunderstood
• Confused by Annuities? Making Sense of the Different Types
• What You Don't Know About Annuities Can Hurt You
• Is an Annuity Worth It? Tax Pros and Cons

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

You’ve worked hard to save for retirement in your 401(k) and now IRA — and succeeded. But wait. Your work isn’t done.

If you adopt a plan that combines assets to the best effect, our new IRA study shows average starting income of an IRA4Income plan of 50% to 75% over traditional planning.

Before describing the planning methodology and our study of the results, let’s describe these assets and answer the question, “Why haven’t I heard about this before?”

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

What are these assets? And why haven’t we seen this before?

Are we talking about high-yield bonds, complex annuities or other exotic investments? Nope. In fact, the elements are a little boring:

• An IRA account invested 50/50 in fixed income and stock investments
• Lifetime income annuities with income starting immediately or in the future
• A home equity conversion mortgage (HECM) that generates income and liquidity

What’s unique is that the asset classes come from three separate financial businesses — investments, insurance and mortgages — and the Go2Income planning methodology (a little like AI) has figured out how to put the pieces together for maximum benefit, for all retirement ages and objectives.

If you haven’t heard about this method, it’s because the different businesses operate quite separately, sales forces have their own requirements for what they can sell you, and combining these asset classes requires complying with multiple regulations.

That means most advisers can’t, or won’t, talk about the asset classes they don’t represent.

Consumers don’t share those restrictions and can explore something like my company’s IRA4Income method, which, besides the huge increase in income, creates more liquidity than the IRA alone. By age 85, it can provide nearly double the IRA by itself.

That increase could help to cover, for example, the long-term care costs that 40% of retirees will incur.

How well do these assets have to perform?

Using our Go2Income planning technology, we’ve put the assets together into IRA4Income by first combining two programs: IRA2Income, made up of investments and immediate annuities, and HomeEquity2Income, made up of a HECM and a QLAC deferred-income annuity. (For more on this combo, see my article How Combining your Home Equity and IRA Can Supercharge Your Retirement.)

As you’ll see below, these programs can also be set up on their own to provide benefits, even if you don’t seek the maximum win-win of complete integration into your retirement income plan.

Our study analyzes results for different ages, marital status, IRA savings amounts, value of home and market conditions.

The old rule about taking $40,000 as starting income from your $1 million IRA has been upended, with starting income amounts that range from $60,000 to $80,000, depending on the case.

Highlights from the study

Each case study starts with $1 million from a rollover IRA and $1 million in home value. Besides starting income, the study looks at liquid savings and legacy, making sure we consider all three key retirement objectives. Starting income grows by 1.5% per year until age 85.

Set out below are key results for sample cases, as well as key planning assumptions:

62-year-old man

• Starting income: $70,000
• Total liquid savings at 85: $763,000
• Total legacy at 95: $2,597,000

65-year-old woman

• Starting income: $69,100
• Total liquid savings at 85: $977,000
• Total legacy at 95: $2,659,000

70-year-old couple

• Starting income: $68,200
• Total liquid savings at 85: $1,138,000
• Total legacy at 95: $2,583,000

75-year-old couple

• Starting income: $70,700
• Total liquid savings at 85: $1,115,000
• Total legacy at 95: $2,364,000

Key planning assumptions: Stock market investment returns: 8%; fixed income total return: 5%; allocation to annuities: 30% in an immediate annuity, 20% in a QLAC deferred-income annuity; HECM adjustable interest rate: 7.75%.

Too good to be true?

As with any retirement plan, the study results are based on certain assumptions about the performance of each asset class. The most important aspect is that no one assumption drives the results:

• The lifetime annuity is fully guaranteed and is issued by a highly rated insurance company
• The HECM interest rates are adjustable within limits, but with a large portion of the mortgage interest paid by the QLAC deferred-income annuity
• The IRA investment assumptions reflect an equity return that is lower than average long-term market returns

In setting up a personalized plan, you can customize the assumptions to your risk tolerance.

An IRA4Income plan in more detail

Let’s look at our example investor, Sally, age 70, who now has $1 million in rollover IRA savings and a home worth the same amount. She wants the maximum amount of income, within reason, and liquidity for long-term care costs.

Fortunately, Sally has read our articles and realizes her home is a valuable asset and that she can consider it as a way to ensure her money not only lasts for her lifetime but also provides a resource for unplanned expenses.

The charts below demonstrate how IRA4Income can bolster her spendable income (starting at $71,000) while providing access to savings that could pay for large unplanned expenses after age 85. Her total liquid savings under this plan are nearly $1 million at age 85 and will continue to grow thereafter.

What about taxes? What about risk?

Sally is not obsessed with taxes but would like to understand whether there’s any portion of her income, unlike the IRA, that’s free from tax. She’s pleased that, until 85, about 20% of her income is tax-free.

If we measure risk by the uncertainty of the value of the investment portfolio, a 100% IRA is all at risk, while with IRA4Income, only about 50% is subject to market risk.

If you’re nervous about plunging in all at once, the parts of an IRA4Income plan can be put in place one at a time, following your own timeline.

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As pointed out above, you could start by combining investments with an immediate income annuity (IRA2Income) or access the value of your home with a HECM and a QLAC.

At the same time, you might consider whether to delay claiming your Social Security benefits to get larger payments.

You might be able to wait until 73 (or 75 if you were born in 1960 or later) to take RMDs (required minimum distributions) from an IRA, allowing that income source to grow.

When you consider all your options together, you have choices.

Are you ready to start now?

In these articles, we have worked to explain these financial approaches in clear language so readers can talk knowledgeably with an adviser about what steps to take and when.

Still, there are indications that some people just throw their hands in the air and resolve to live with their savings in different silos for stocks/bonds, annuities and their home.

You don’t have to do that.

Visit Go2Income to order a Go2Income plan that with IRA4Income inside can meet more of your retirement objectives. A Go2Specialist can answer questions about the plan or refer you to a qualified adviser.

Related Content

• What the HECM? Combine It With a QLAC and See What Happens
• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan
• Would a Reverse Mortgage Work for You in a Gray Divorce?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

I hate annuities — and you should, too.

That infamous line, popularized by financial entertainers and clickbait headlines, has shaped a generation’s perception of annuities. But let’s be honest — most people who say it probably don’t understand how annuities work or why they exist.

As a financial adviser, I regularly hear objections like:

• “I hear they’re bad, but I’m not sure why.”
• “I can get a better return in the market.”
• “There’s no death benefit — what if I die early?”
• “Aren’t my funds locked up for 10 years?”
• “Annuities are full of high fees.”

These concerns sound reasonable. And for some annuities, they’re true. But others are misunderstood — and in today’s market, that misunderstanding can come with a cost.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

A wake-up call for retirees

In the last 90 days, we’ve seen how fast the market can shift. Inflation, tariffs and weak GDP data have shaken investor confidence. For retirees, this kind of market volatility isn’t just stressful — it’s dangerous.

Many Baby Boomers are entering retirement without pensions, relying instead on 401(k) plans — vehicles never designed to serve as lifetime income sources.

That means the burden of generating reliable income falls on portfolios that may be vulnerable to market swings, rising taxes and behavioral missteps.

That’s where annuities — when used thoughtfully — can provide stability and confidence.

What annuities actually do

Annuities aren’t one-size-fits-all, but they can address key retirement risks:

• Sequence of return risk. This is the danger of withdrawing during a market dip, which can permanently impair a portfolio
• Longevity risk. With more retirees living into their 90s, outliving savings is a growing concern
• Behavioral risk. Annuities help reduce panic-driven decisions by securing foundational income
• Inflation risk. Some annuities offer rising income features to help keep up with cost-of-living increases
• Taxation risk. Deferred growth lets you control when to recognize income, which can support tax strategy

Some annuities are designed for principal protection, others for lifetime income and others for modest, consistent growth. Certain annuities even allow for partial internal Roth conversions before triggering income.

Used strategically, annuities can serve as a “personal pension,” allowing other assets to stay invested longer and grow without being tapped prematurely.

The drawbacks of annuities

No investment is perfect, and annuities are no exception. Here are common downsides to watch for:

• High fees. Some annuities — particularly variable contracts — come with layers of costs (mortality and expense fees (M&E), rider fees, investment subaccount costs).
• Liquidity limitations. Most annuities have surrender periods, meaning withdrawals above a certain amount can trigger penalties in the early years.
• Complexity. Features like income riders, caps, spreads and participation rates can be confusing.
• Inflation risk. Not all annuities offer inflation protection. Some provide level payments that lose purchasing power over time.
• Tax treatment. Withdrawals are taxed as ordinary income, not capital gains. That can matter in taxable accounts.

The key is understanding what you’re buying — and whether it fits your needs.

What to look for in an annuity

If you're considering adding an annuity to your retirement plan, keep these seven practical steps in mind:

1. Define your goal. Are you looking for lifetime income, principal protection, growth or tax deferral? Your goal should drive the type of annuity you explore.

2. Understand the time commitment. Know the surrender period and when you’ll need access to the funds.

3. Compare fees and features. Ask for a fee summary. Low-cost fixed annuities may suit some, while others may need riders that justify higher expenses.

4. Vet the insurance carrier. Guarantees are only as strong as the insurer. Look for companies rated A or better by AM Best, Moody’s or S&P.

5. Ask about income flexibility. Some contracts allow flexible start dates, inflation-adjusted income or joint payouts with spousal continuation.

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6. Coordinate with your overall plan. An annuity should complement — not replace — other investments. Think of it as a strategic building block, not the whole foundation.

7. Work with a fiduciary. Choose an adviser legally obligated to act in your best interest, not someone just selling a product. (You can learn more about this in the article The Financial Fiduciary Standard Explained.)

The bottom line

Annuities aren’t inherently good or bad — they’re tools. For retirees lacking pension income or concerned about market volatility, they can offer a sense of security that investments alone may not.

But like any tool, they work best when used properly, for the right job and with a clear understanding of the trade-offs.

As you transition from the accumulation phase of retirement (growing wealth) to the decumulation phase (using it), it’s critical to work with someone who understands the shift — and how to structure income that lasts, regardless of what the market or tax code throws your way.

If an annuity can help you retire on your terms, sleep better at night and live with more freedom, it might be time to rethink your views on them.

Index or fixed annuities are not designed for short-term investments and may be subject to caps, restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims-paying ability of the issuer.

Related Content

• Should You Add an Annuity to Your Retirement Portfolio?
• Why So Many Experts Consider Annuities a Win for Retirees
• Annuity Red Flags to Watch Out For
• What You Don't Know About Annuities Can Hurt You
• How Are Annuity Withdrawals Taxed?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

In a recent article about QLACs, we said, “A QLAC doesn’t make your retirement. It makes it better.”

We offered up several ideas about using a QLAC as part of your plan for retirement income. One was to use a portion of QLAC lifetime payments to pay interest on a reverse mortgage called a HECM, resulting in a combination called HomeEquity2Income, or H2I.

The twofer benefits of a QLAC and a HECM

I’m a numbers guy, and I follow the patter of a former local New York sports broadcaster who used to urge, “Let’s go to the videotape!” for details of the game just played.

The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

My primary reason for favoring a combination of a QLAC (qualifying longevity annuity contract) and a HECM (home equity conversion mortgage) is what I call the twofer rule applied to both components.

QLAC twofer:

• Save taxes by deferring distributions from a rollover IRA account until age 85
• Lifetime income, also called longevity protection

HECM twofer:

• Additional tax-free income
• New source of liquidity for unplanned or uninsured expenses

To get an idea of how much income a QLAC can generate, you can get a personalized quote using this QLAC calculator. That income, when combined with a HECM as part of your retirement planning process, can help you achieve your retirement goals:

• Lifetime income
• Liquidity to cover long-term care
• A financial legacy for your heirs

And at the same time, you can defer taxes and lower risk.

Here's the triple play when you combine a QLAC and a HECM: By taking care of longevity protection and using some of that QLAC income to pay HECM interest, you dramatically increase the liquidity to pay for long-term care expenses, which a lot of us will face.

A recent report by Morningstar shows that about 45% of all baby boomers will need long-term care — ranging from in-home services to a nursing home — in retirement. The QLAC-HECM combination in the form of H2I allows you to anticipate a long life and also pay for that LTC.

Now, let’s do the numbers and focus on how the right combination can benefit retirees.

Sally's current situation

Sally, 70, has a traditional IRA worth $1 million invested in a stock-and-bond portfolio. She fully owns her home, which has a value of about $650,000. She’s reevaluating her financial situation, particularly with regard to long-term care expenses.

Sally’s adviser told her that with her income spending starting at around $60,000 per year, the IRA alone should last until age 95 if she is careful. (Unplanned withdrawals would upend that plan.)

Having read our previous articles about the benefits of adding guaranteed lifetime income, she considered adding a single payment immediate annuity (SPIA) contract to reduce the risk of running out of money.

She created a plan with a 30% allocation to a SPIA and a 50/50 split between equities and fixed income for the balance. Under this plan, her starting income increases to $63,500, and her money doesn’t run out.

While the SPIA contract in Sally’s plan went a long way to address the “don’t run out of money” issue, she recognized that the only liquid assets would be her rollover IRA account, which she might need for planned and unplanned expenses.

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Her liquid IRA account, starting at $1 million, didn’t run out, as she found out when she “tested” the plan, but it wasn’t adequate to pay for any substantial amount of unplanned or uninsured expenses.

She needs more help in adding liquidity to her plan, especially because when she takes money out of the IRA to pay for those expenses, her remaining savings will produce even less income.

Adding the H2I strategy to her retirement plan

Sally realizes her home is a valuable asset and that she can consider it as a way to ensure her money not only lasts for her lifetime, but also provides a resource for unplanned expenses.

She could simply apply for a reverse mortgage in the form of a federally endorsed HECM that provides not only access to cash but also an increasing line of credit during the life of the loan.

However, the H2I combination provides even greater benefits. That’s because if she converts some of her IRA savings to a QLAC, a form of deferred income annuity, she can use a portion of that income to pay interest on the HECM and preserve more of her liquidity and her ability to leave a legacy to heirs.

The charts demonstrate how H2I can bolster spendable income while providing access to a HECM line of credit that can finance large unplanned expenses after age 85.

Her total liquid savings under this plan reach $968,000 at age 90. And she can draw on it without tax if it comes from an H2I line of credit.

A simple explanation of advantages

Some of you may be skeptical about the benefits that a QLAC and then a HECM can offer together. Here’s a simple description of what you saw above:

1. A HECM taps into the “largest savings source” of retirees (your house, per experts):

• Tax-free cash flow until age 85 from HECM drawdowns
• Finds the liquidity missing from many plans

2. A QLAC provides longevity protection in two ways:

• Increases your guaranteed lifetime income
• Pays a portion of HECM interest after 85 to grow liquidity and legacy

3. A QLAC and a HECM together provide increases in income and liquidity

4. Importantly, that liquidity from a HECM comes without income taxes

And none of the above is subject to today’s stock and bond market volatility.

Visit Go2Income to order a Go2Income plan that with H2I inside can meet more of your retirement objectives. A Go2Specialist can answer questions about the plan or refer you to a qualified adviser.

Related Content

• Transform Your Retirement Plan With This Powerful Combo
• How Combining Your Home Equity and IRA Can Supercharge Your Retirement
• Is Your Retirement Solution Hiding in Plain Sight?
• How Your Home Can Fill Gaps in Your Retirement Plan
• Would a Reverse Mortgage Work for You in a Gray Divorce?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuities can supercharge your retirement savings, but there’s a potential downside. Nearly all annuities impose a surrender period, during which excessive early withdrawals are subject to a surrender charge.

With proper planning, however, you can easily avoid surrender charges. The key is knowing how much liquidity or access to funds you may need in your annuity.

That depends on your circumstances: how much you have in liquid savings, your other income sources, your health and how much spending flexibility you have.

Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Some people need minimal unpenalized liquidity in an annuity. Retirees who have ample guaranteed income from employer pensions or IRAs and Social Security as well as good savings may need little flexibility.

Most financial experts recommend having the equivalent of several months' expenses in fully liquid savings or investments.

Many people, however, may need access to some of their funds for potential expenses, such as medical care or major home repairs, or even splurging on a new car or big vacation.

If you can’t afford to or don’t want to tie up any of your money, an annuity won’t be a good choice for you.

How surrender periods work

By understanding the surrender period and choosing annuities that provide sufficient access to your money, you can avoid surrender charges.

Here’s how the surrender period works for the most popular type of fixed-rate annuity, the multi-year guaranteed annuity (MYGA). Like a bank certificate of deposit, a MYGA pays a set guaranteed interest rate for a term of anywhere from two years to 10 years.

For instance, let’s say you have a seven-year MYGA that lets you take out 10% of the annuity value without penalty each year after year one. The surrender charge for any withdrawals above the allowed amount might start at 9% in year one and decrease by 1 percentage point each year after that.

There’s also usually a market-value adjustment, which essentially acts as an extra charge that can apply to early withdrawals if interest rates have gone up since you purchased the annuity.

If there’s a big interest-rate spike, the MVA could dwarf the usual percentage-based surrender charge.

While 10% penalty-free withdrawals are common, provisions vary. Some annuities may allow 5% to be withdrawn, and a few don’t allow any early withdrawals.

Make sure to understand the details before you buy. Sometimes you can get a higher withdrawal percentage in exchange for a slightly lower rate. That can sometimes be worth the peace of mind and greater financial flexibility.

If the annuity is in a traditional IRA, you may want sufficient penalty-free withdrawals to cover your required minimum distributions (RMDs), which start when you reach age 73.

Some annuities have enhanced withdrawal provisions, commonly referred to as living benefits, which waive penalties if you need to withdraw money for events such as an extended nursing home stay or a terminal illness.

'Laddering' also offers more access to funds

Laddering is a term originally applied to investing in bonds with different maturities. You can also stagger terms for MYGAs instead of putting all your money in one basket. Laddering can give you both good current income and future flexibility.

It also reduces the risk that you’ll ever be hit with a surrender charge, because once the term ends, the surrender charge of course no longer applies. You’ll get more frequent access to maturing funds without the possibility of penalties.

For example, you could create a ladder of MYGAs with three-, five- and seven-year terms. Then you’ll have complete access to about a third of your money three, five and seven years from when you created the ladder.

Three years from now, you’ll be able to roll those proceeds of the first annuity tax-free, via a 1035 exchange, into any other annuity that looks most attractive then.

If rates have moved higher, you’ll be able to get that new higher rate. The risk is that rates will have gone down in the interim — but you will have locked up most of your money in five- and seven-year annuities with higher rates.

But if you want or need the money then, you don’t have to do an exchange. If you decide to surrender your annuity (meaning cash it out), all of the accumulated interest you receive will count as taxable income, and if you’re younger than 59½, it’s normally subject to a 10% IRS penalty.

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The best laddering strategy depends in part on what the interest rate curve looks like at the time you’re creating the annuity ladder.

Today, the MYGA rate curve is flattish, so you won’t give up much income by putting some of your money in shorter-term annuities. You can get up to 5.85% on a three-year annuity, 6.05% on a five-year term, and 6.00% on a seven-year product as of May 2025.

Surrender periods apply to other types, too

Fixed indexed annuities have become popular in recent years. They often allow 10% withdrawals annually and have declining surrender penalties for the first seven to 10 years, and may allow access to funds through annuitization or optional income riders.

In general, they’re better suited for long-term goals than flexible cash access.

Variable annuities typically offer more access than indexed annuities. A few even allow unlimited penalty-free withdrawals. But, unlike fixed annuities, they are subject to market risk and frequently come with hefty ongoing fees.

If your variable annuity is mostly invested in stock funds, the value could be down when you need funds and you could take a loss, even if you don’t pay a surrender charge.

Finally, income annuities (deferred and immediate) have the least flexibility. You’ve placed your money with an insurance company in exchange for a current or future stream of guaranteed income.

I’m a strong advocate of income annuities, but anyone considering purchasing one should understand that they typically have no cash value and don’t permit withdrawals. In some cases, you may be able to move up the date when you begin receiving regular payments.

The bottom line: Plan not to pay

Paying a surrender charge amounts to giving away your money to the annuity company. Similarly, paying the IRS penalty for withdrawals before 59½ is a gift to Uncle Sam, who won’t even send you a thank-you note.

With proper planning, there’s no need to ever get stuck with either bill.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356. There are no fees or charges for the firm’s services; 100% of the client’s money goes to work for them in their annuity.

Related Content

• How Are Annuity Withdrawals Taxed?
• What You Don't Know About Annuities Can Hurt You
• Annuity Payouts: How Much Can You Get Each Month?
• The Key to Choosing the Right Annuity: Do Your Homework
• Fixed Index Annuities as Retirement Tools: Pros and Cons

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

About the Kiplinger Readers’ Choice Awards 2025
The Kiplinger Readers’ Choice Awards aim to recognize and celebrate the best products and services in the personal finance arena. We asked you, our Kiplinger community, to help us name the products and services you think have delivered excellent value in the past year.

The survey results, which we’re sharing here in our second annual Readers’ Choice Awards, offer valuable insight into which providers shine when it comes to your everyday interactions and experiences with them. Our Awards recognize excellence in everything from credit cards, banks and brokers to insurers, tax software and financial apps. For each category, we’ve listed an overall winner that earned the highest score. We’ve also highlighted other products and services that earned above-average scores for various criteria we asked readers to assess.

By voting, our community has helped us form our guide to the very best financial products. These are the products and companies that you think stand out from the crowd.

Kiplinger Readers' Choice Awards: Annuity Providers

Annuities are contracts that allow you to pay up front or over time in exchange for the opportunity to create a steady stream of income in retirement; they may be fixed or variable, and they may provide income immediately or in the future. We asked readers to assess their annuity provider based on customer service, their overall satisfaction with the company and how likely they are to recommend it to others.

OVERALL WINNER: New York Life

Outstanding for:

• Customer service
• Most recommended
• Overall satisfaction

Readers rated New York Life's annuities highly in all three categories we asked them to judge. Several respondents expressed appreciation for the strength of the firm’s communication with clients. And one reader noted that New York Life’s annuities offer “very competitive rates” compared with other annuities on the market.

New York Life has been serving clients for 180 years and holds the highest financial-strength ratings from all four major credit rating agencies: A.M. Best (A++), Fitch (AAA), Moody's (Aa1), and Standard & Poor's (AA+). Its annuity products include fixed deferred annuities, variable annuities and immediate income annuities.

Allianz Life Insurance Company of North America

Outstanding for:

• Customer service
• Most recommended
• Overall satisfaction

Allianz Life offers two main categories of annuities:​ fixed index annuities and registered index-linked annuities, also known as buffered annuities. While the former provides potential for growth linked to market indexes with principal protection, the latter offers higher growth potential with some market risk, featuring various index options and crediting methods.​

Multiple readers pointed out that Allianz Life annuities offer great sign-up bonuses. "Their bonuses for annuities are amazing. I opened six months ago and got a 47% bonus annuity,” says one reader. With these sign-up bonuses, a certain percentage of the initial premium is credited to the annuity's value, typically lasting about 18 months.

MassMutual

Outstanding for:

• Most recommended
• Overall satisfaction

MassMutual offers the gamut of annuity products, including fixed annuities, fixed-index annuities, registered index-linked annuities and immediate annuities. MassMutual also holds some of the highest ratings from all major credit rating agencies: A++ from A.M. Best, AA+ from Fitch, Aa3 from Moody’s, and AA+ from Standard & Poor’s.

Nationwide

Outstanding for:

• Customer service

Nationwide earned accolades for its customer service. The firm offers an array of annuity products, including fixed annuities, fixed-indexed annuities, registered index-linked annuities and immediate annuities. Some contracts allow free withdrawals up to a specified percentage annually without surrender charges.

TIAA

Oustanding for:

• Customer service

“Carnegie provided a great benefit to the nation's teachers when he set up TIAA!” says one reader.

Originally established in 1918 to provide retirement services to educators, TIAA has since expanded its offerings to include a broader range of nonprofit and public-sector employees, including professionals in academic, research, medical, government and cultural fields. TIAA earned high ratings from readers, particularly for customer service.

TIAA's annuity offerings, such as the TIAA Traditional Annuity, are available through employer-sponsored retirement plans such as 403(b)s and 401(k)s, as well as IRAs.

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Annuities are having a moment, to the tune of $105 billion in sales for the first quarter of 2025. It’s the sixth consecutive quarter in which sales topped $100 billion.

This record-setting growth in annuities comes during a three-month period that is typically slow for the annuity industry. While January saw sales dip at a rate not seen in a couple of years, sales picked up in February and March. The increase in sales has been driven by fear and uncertainty about the economy and interest rates that are still favorable for this type of product, says Keith Golembiewski, director of annuity research at LIMRA, the trade association for annuities.

“In mid-February and March, we really saw significant sales growth with a lot of the focus on a flight to safety,” says Golembiewski, noting investors were also reacting to the potential for the Federal Reserve to cut rates later in 2025. By purchasing a fixed-rate annuity, investors can lock in rates before they potentially decline.

Unlike growth stocks, annuities tend to perform better when interest rates rise. Just like CDs and money market accounts, the higher the rates are, the better the payout you’ll receive.

With interest rates on fixed annuities around 6%, the environment for the product is still favorable. That may change later in the year. The Federal Reserve has signaled it could cut interest rates, with the market anticipating two reductions this year. If President Donald Trump has his way, interest rates will fall further, which would be bad news for annuity investors.

“Lower rates mean lower returns on annuities,” says Michael Santiago, senior financial editor for Annuity.org. “Locking in a fixed rate now is part of what’s drawing attention to annuities. It allows investors to secure returns before potential rate cuts.”

Fixed-rate annuities are driving the growth

During the first quarter, LIMRA reported total fixed-rate deferred annuity sales were $39.5 billion. While that is down 8% year-over-year, fixed-rate deferred annuities were the main driver of annuity sales growth, accounting for close to 38% of the total annuity market during the first three months of the year.

Sales of fixed-rate deferred annuities jumped in March among investors looking to avoid volatility in the market and get a better return than with a CD.

With a fixed-rate deferred annuity, you can save money and grow it at a fixed interest rate over time before you start receiving payouts.

Investors are looking for a safe-haven

Another reason why older investors and retirees have been turning to annuities is market volatility brought on partly by the Trump administration's tariff policies.

Only a few weeks ago, the markets fell over a thousand points in a day over concerns about global trade wars; stocks then gained more than 3,000 points on another day when those concerns appeared to dissipate.

With tariffs on, off, back on and off again, and with talk of a recession, stagflation or none of the above, it is creating uncertainty and volatility. Investors seeking downside protection will turn to safer products like CDs and annuities to cushion any potential blow.

“There are a lot of unknowns," says Golembiewski. "What’s happening in the job market? Is inflation going up or down? How are the S&P 500 and the Dow Jones performing? There’s a lot of movement, a lot of volatility. A flight to safety gives clients peace of mind.”

That’s where a product like a Multi-Year Guaranteed Annuity (MYGA) comes in. It is similar to a CD but has a higher payout and can be held for longer than a CD. With MYGAs, you get a guaranteed fixed interest rate for the entire term of the annuity, which is typically up to ten years, earnings grow tax-deferred, and your initial investment is protected from any downside. Some MYGAs allow you to withdraw money penalty-free.

“It gives you downside protection,” says Michael Downing, Chief Operating Officer of Athene, the annuity provider. “You never lose your initial investment. Typically, you are getting a lot more than CD, upward of 200 basis points.”

What are the risks of owning annuities?

While the environment for annuities is still favorable, that may not always be the case. Sure, annuities can act as a haven during troubled economic times, but if the volatility gets too extreme, annuities tend to perform poorly, as do other areas of the markets.

After all, if the economy fell into a recession, investors would be more focused on saving money than purchasing an annuity, says Golembiewski.

“Extreme volatility would indicate some recession concerns that would have an impact on the annuity market,” he said.

The same goes for drastic cuts in interest rates. If the Fed surprised the markets and cut rates by more than anticipated, that could hurt sales of annuities.

Don’t act because of what ifs

At the end of the day, purchasing an annuity shouldn’t be driven by fear that rates will get cut or that the economy will fall into a recession.

Purchasing an annuity should be driven by the desire for guaranteed income in retirement, or by a belief that it represents a conservative way to get a better return than from a CD.

“Investors should consider how it fits into their long-term plan and determine if it’s a suitable fit for them,” says Santiago. “Additionally, speaking to a fiduciary advisor can alleviate the stress that often comes with financial decision making.”

Related content

• Should You Add an Annuity to Your Retirement Portfolio?
• Five Annuity Mistakes to Avoid
• Annuity Fees: Are You Paying Too Much?
• Annuity Payouts: How Much Can You Get Each Month?

When it comes to guaranteed lifetime income, retirement savers are increasingly turning to annuities. It gives them peace of mind knowing they will get a fixed payment monthly and that they won’t run out of money in retirement.

Plus, depending on the annuity they purchase, they don’t have to worry about it tanking in the markets like stocks have been doing lately. It’s a big concern for millions of Americans, which is partly why annuity sales topped $100 billion in the first quarter, according to LIMRA, the insurance trade association. It's the sixth quarter in a row in which annuity sales were over $100 billion.

“Our latest Consumer Sentiment Survey shows Americans’ concern about the economy has risen sharply since January. This growing economic anxiety drove March sales results to be the second highest in history,” said Bryan Hodgens, senior vice president and head of LIMRA research.

But not all annuities are created equal. With over 1,500 products to choose from, there is certainly a risk of deception.

“The insurance companies aren’t scamming people, but annuities are complicated products,” says Ingrid Evans, an attorney at Evans Law Firm. “People don’t understand (annuities)...they are so hard to decipher that a normal person can’t figure out what’s going on with their money.”

Without a doubt, annuities are complicated and some less than scrupulous annuity brokers are using that to their advantage. From high pressure sales tactics to churning, here’s what should raise red flags when shopping for an annuity.

1. High-pressure sales tactics

Annuities tend to be sold to consumers via agents, who represent one insurance company or are licensed to sell annuities from a variety of providers. Most work off commissions, and the unscrupulous ones will resort to high pressure sales tactics to get people to buy an annuity, even if it's not the best product for them.

Red flag: If an agent uses phrases like “act now” or “limited-time offer,” that should raise red flags. When you purchase an annuity, you lock in your money for an extended period. You should not feel pressured to act.

2. Churning to get a fatter commission

Churning occurs when an agent or broker gets an investor to switch their annuity for another one, which could be more expensive or is not in the best interest of the client. The motivation is a bigger commission for the agent.

Red flag: “If you have an agent who sells you an annuity and two, three or four years later they want to sell you another annuity,” that should raise a red flag, says Evans. “You have to pay a surrender charge to go into another product that may or may not be inferior.”

The surrender charge is the penalty an insurance company charges when an annuity owner withdraws or transfers money before the contract ends. Typically the surrender fee is the most in the first year and declines each year after that.

The surrender charge can vary based on the insurance company, the age of the annuity and amount withdrawn.

3. Oversimplifying the product

Annuities are complicated, but some agents won’t present them that way. They tend to oversimplify the product, focus on the benefits, and gloss over potential negatives.

That’s particularly common in advertisements and at seminars designed to get people to purchase annuities, says Shawn Plummer, founder of The Annuity Expert, the national annuity brokerage and insurance agency. He says some of these unscrupulous brokers will hire new agents, teach them the basics of how annuities work, equip them with a script, and send them out to seminars.

Red flag: “All of my staff have to know the cons better than the pros,” says Plummer. “We want the person buying it to know exactly what they are getting.”

Plummer says that anybody buying an annuity should ask the broker what’s wrong with it, and if the broker can’t answer right off the bat and be brutally honest, it behooves the potential customer to walk away.

4. The broker asks you to send money directly to them

An annuity is a contract between the investor and the insurance company. A broker acts as the middleman, recommending and selling annuities. He or she gets a commission from the insurance company, not from the investor purchasing the annuity.

Red flag: If the broker asks you to send money to them directly, that should be a warning sign that something is amiss.

“There’s no reason” for the broker to ask you to send money directly," says Plummer. “We are an annuity expert. We don’t touch any money. It’s always between the financial institution," he says.

5. Misrepresenting annuity bonuses

Bonus annuities offer an immediate boost to the annuity balance, as either a percentage of the initial premium payments or as a first-year interest rate bonus.

This kind of annuity is designed to lure investors in; while it's not a scam, the way it is marketed to potential customers can be misleading. After all, that bonus may come with long surrender periods, high surrender charges if you withdraw the money early, more fees, lower interest rates over the life of the annuity, or a non-tangible bonus.

“Some annuity companies offer an ‘income bonus’ that is used towards the calculation of a lifetime income payment in the future," says Plummer. "It is not a value that a consumer can walk away with in a lump sum,” says Plummer.

Red flag: If you hear an advertisement on the radio or receive a flyer in the mail promising a 50% bonus with an annuity without any explanation of the strings attached, that should give you pause. That lofty bonus may be too good to be true.

Do your homework

The best way to protect yourself when shopping for an annutiy is to do your homework and learn as much as you can about this financial product before making a purchase.

If you have a financial adviser, tap that person for advice. If you work with a broker, find one that is reputable and sells annuities from a variety of firms instead of one insurance provider.

Make sure whichever insurance company you do decide to purchase an annuity from has a solid track record, sound financials, has been in the business for several years, and has a good rating from the three rating agencies: AM Best, Moody’s, and Standard & Poor’s.

“Stay away from B-rated companies,” says Plummer. “Since there are so many products to select from, there is zero reason to choose a B-rated company.”

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• Annuities: Do You Need Guaranteed Income In Retirement?
• Annuity Fees: Are You Paying Too Much?
• 16 Retirement Mistakes You Will Regret Forever

Perhaps you’ve heard of QLACs and want to learn more about how you might incorporate one into your plan for retirement income, but you feel like you don’t have quite enough information.

No wonder.

A well-written and thoughtful op-ed in the New York Times about reducing risk in retirement did mention annuities, but to my chagrin, it didn’t bring up the value of QLACs, despite:

• Government endorsement of QLACs’ significant retirement benefits
• A competitive QLAC marketplace, with top-rated insurance carriers
• Flexible planning software that can show you how to integrate a QLAC into your retirement plans
• QLAC rates are at an all-time high ─ for a new retiree, an average of 80% better than three years ago

Check out the rates for yourself by visiting our QLAC Calculator.

Unique tax benefits plus more

Happily, you might have read my article This Underused IRA Option Offers Both Tax Benefits and Income Security to quickly learn about the basic aspects of QLACs and how they provide guaranteed income later in retirement while deferring RMD payments for a decade or more. That tax benefit can be worth $50,000 or more for a retiree who elects a maximum QLAC.

The most important uses of a QLAC, however, involve the ways you can integrate it into your retirement plan with other asset classes, including your IRA account value and home equity.

In those cases, not only does a QLAC provide income, but it also can help pay for costs like long-term health care.

This article lists multiple ways to take full advantage of a QLAC to manage retirement risk and create income for specific retirement needs and wants.

Managing retirement risks with a QLAC

We are often surprised when visitors to our site focus solely on the QLAC tax benefits and less on what these high amounts of lifetime guaranteed income can be used for.

We’re surprised because Sally, the 70-year-old woman we use as an example consumer, has a 50% chance of living to age 85 and beyond — and should need income possibly into her 90s.

She also has a similar probability of needing to cover long-term care costs occurring late in retirement. It’s better to manage risk ahead of those potential needs and create future income to address them.

Sally’s original plan. In Sally’s case, with the $1 million in her IRA account, she wants income of $60,000 per year (growing with 2% inflation) and not just the $40,000 she would take if she followed the well-known but tired 4% rule.

If she adopts a retirement plan without a QLAC and allocates 30% of her savings to equities ($300,000), with the balance to fixed income ($700,000), her starting income could be $60,000.

However, assuming a blended portfolio return of between 4% and 4.5%, she runs out of money at age 90, a scary fact that is illustrated in the charts below.

Even with the relatively low 30% allocation to stocks, she still has investment risk, and because of that will likely invest more in short-term funds with lower returns as her account begins to run low.

Sally’s plan with a QLAC. When Sally instead allocates $200,000 to a QLAC in a “laddering” strategy that adds more guaranteed income at her age 75, 80 and 85, and with $400,000 allocated to equities and $400,000 to fixed income, she does not run out.

Her IRA account decreases with RMDs she can’t escape after 85, but she still leaves a legacy because the QLAC is the source for nearly one-third of her late-in-retirement income.

To those who ask why Sally needs all that income late in retirement, we’d point to the health-related costs that she could face.

Other specific uses for her QLAC income

Once you understand the power of QLACs as evidenced above, there are multiple applications:

Provide a hedge against a reduction in Social Security benefits. Most pundits think the government will bail out the Social Security system, but the possibility remains that without government action, benefits could be cut significantly around 2033.

For those impacted, by shifting some of your IRA account value to a QLAC, you can guarantee yourself a large increase in income starting at, say, age 80 or 85. The new payments could bolster your capacity to cover bills and even splurge on the grandkids.

Charitable contributions. You’d like to continue to be charitable late in retirement, so you can earmark a portion of your QLAC payment to give to your favorite non-profit each year. The gifts are deductible, another tax benefit.

Payment of premiums on life insurance or long-term care insurance. Regular recurring insurance premiums can increase every year (and in any event can represent a large percentage of your budget), but if you stop paying these premiums, you could lose the benefit.

QLAC annuity payments are an effective way to protect your legacy for the next generation.

For instance, your QLAC income can cover the rising cost of your LTC insurance premiums, and instead of relying on savings to pay for a stay in a rehabilitation facility, let your LTC policy pay for it.

Payment of recurring caregiver expenses. The same is true for costs you may incur for a home health aide. Even when you don’t need to go to a nursing home, you may require special help at home to get over an illness or take care of your daily needs.

The extra QLAC income could pay a professional caregiver or a family member who gives up a job to provide support in this way. Again, the difference in outlay could amount to tens of thousands of dollars a year.

Payment of interest on a forward or reverse mortgage. Perhaps you are paying off a mortgage you took out at 60 for a new house or an addition to your existing house. Or you could have set up a reverse mortgage to pay other expenses.

A QLAC could pay the interest on the reverse mortgage, which means the money owed when the house is sold will not include the cumulative interest paid by a QLAC. This has the same effect on the reverse mortgage’s net line of credit. See my article A Different Way to Approach Your Mortgage in Retirement for more information on this. I will share more about QLACs and home equity in my next article.

The unexplored benefit of a QLAC

I like to say, “A QLAC doesn’t make your retirement. It makes it better.” Consumers can build a more efficient plan to free up income and increase liquidity to help them take care of the big stuff that might come up in retirement. One of the benefits of a QLAC is the most important to remember: In all cases, the QLAC income is guaranteed and continues for life.

Especially now, as the stock market has lost as much as 20% for certain indices and retirees are worried about their 401(k)/IRA account balances and resulting income, the value of a plan like Sally’s makes even more sense. You can build a version here, suited to your specific needs.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

For financial advisers, annuities can play a critical role in providing clients with dependable retirement income and confidence.

However, understanding their tax implications is essential to helping ensure optimal client outcomes. Proper planning around annuity taxation helps prevent surprises and supports the overall goal of financial security annuities aim to deliver.

By diving into key aspects of annuities and their tax consequences, advisers will be better equipped to make these unique retirement income tools work smarter for clients.

Types of annuities and their tax profiles

Annuities come in several forms, and their tax treatment varies significantly. Here’s what financial advisers need to know about the main types.

1. Qualified annuities

What they are. Funded with pre-tax dollars via tax-advantaged accounts like 401(k)s, 403(b)s and traditional IRAs.

Tax treatment:

• Contributions are tax-deductible
• Earnings grow tax-deferred, but withdrawals are taxed as ordinary income
• Required minimum distributions (RMDs) begin at age 73 (or 75 for those born after 1960)
• Withdrawals before age 59½ incur a 10% penalty, unless an exception applies

2. Non-qualified annuities

What they are.
Purchased with after-tax dollars, making them more flexible but subject to distinct tax rules.

Tax treatment:

• Principal withdrawals are not taxed (as they’ve already been taxed), but earnings are
• Distributions follow the last-in, first-out (LIFO) rule, meaning taxable earnings come out first
• No RMDs are required, though certain events may trigger mandatory distributions

3. Roth annuities

What they are.
Held within a Roth IRA or Roth 401(k), combining the guarantee of annuities with the tax advantages of Roth accounts.

Tax treatment:

• Contributions are post-tax, earnings grow tax-free and qualified distributions (after five years and age 59½) are entirely tax-free
• Non-qualified distributions of earnings may incur taxes and penalties

Pro tip: Strategically blending clients’ portfolios with a mix of tax-deferred (qualified) and tax-free (Roth) products creates powerful tax diversification for retirement.

Tax implications at the distribution stage

When it’s time to tap into annuities, the tax considerations shift. Advisers should familiarize themselves with how distributions are treated to help clients avoid surprises.

1. Partial withdrawals

• Non-qualified annuities.
These are taxed on a LIFO basis, meaning amounts withdrawn consist of taxable earnings first, then non-taxable principal
• Qualified annuities.
Withdrawals are fully taxable unless the account includes after-tax contributions, in which case distributions are taxed pro-rata

2. Annuitized payments

Once annuities are converted into a stream of regular income, the tax picture changes. Annuity payments are typically divided into two portions:

• A return of principal (non-taxable)
• Earnings (taxable as ordinary income)

The exclusion ratio helps determine how much of each payment is taxable by dividing the principal (investment in the contract) by the expected total return of the annuity.

2. RMD rules for qualified assets

• RMDs apply to qualified annuities, starting at age 73 (or 75 depending on birth year). Missing an RMD incurs steep penalties — up to 25% of the missed amount, reduced to 10% under certain correction conditions introduced by the SECURE 2.0 Act.
• SECURE 2.0 allows annuitized payments to satisfy RMD requirements, offering flexibility for clients using annuities in their portfolio.

4. Early-withdrawal penalties

If clients under 59½ need access to funds, a 10% penalty tax applies — unless exceptions (such as disability or medical expenses) are met.

Interested in more information for financial professionals? Sign up for Kiplinger’s new twice-monthly free newsletter, Adviser Angle.

Advisers can deploy strategies like substantially equal periodic payments (SEPPs) that spread withdrawals over time while avoiding penalties.

Strategies to optimize tax efficiency

1. Roth conversions

Converting traditional IRAs into Roth IRAs allows for tax-free distributions later. Advisers should focus on low-income years or market downturns to execute conversions at minimal tax cost.

Example:
A client converts $50,000 of a traditional IRA in a low-income year, ensuring all future distributions (including from annuities in that Roth) are tax-free.

2. Tax diversification

Advisers should consider structuring portfolios with three tax buckets:

• Taxable (e.g., investment accounts) for near-term liquidity
• Tax-deferred (traditional annuities, IRAs) for lower-tax-rate years
• Tax-free (Roth IRAs or Roth annuities) for legacy goals or high-tax-rate periods

Clients with this diversification can adjust distributions based on tax brackets, creating more retirement income with less tax exposure.

3. Addressing RMDs

Advisers can optimize RMDs by considering annuitized income streams, moving eligible balances between plans or taking distributions earlier to mitigate concentrated withdrawals in later years.

4. Leveraging 1035 exchanges

Non-qualified annuities gain flexibility from 1035 exchanges, which allow tax-free transfers to new contracts that better align with a client’s changing goals.

For example: Moving from deferred annuities to immediate annuities for guaranteed income in retirement.

Common tax pitfalls and missteps

Financial advisers should help clients steer clear of these major errors:

• Failing to track after-tax contributions. Without IRS Form 8606, returns of basis may be overtaxed.
• Mismanaging aggregation rules. Clients owning multiple annuities from one insurer may inadvertently aggregate distributions, complicating their tax treatment.
• Missing RMD requirements.
Clients not aware of their obligations (or updated SECURE 2.0 provisions) risk substantial penalties, jeopardizing retirement cash flow.

Quick insight: Taking more than the RMD in one year doesn’t offset the next year’s withdrawal requirement — it only reduces the account balance used to calculate future RMD amounts.

Actionable adviser takeaways

• Stay current with tax legislation.
SECURE 2.0 changed the landscape for retirement accounts. Knowledge of these provisions helps advisers guide clients toward better decisions.
• Create a tax diversification strategy.
A balanced mix of taxable, tax-deferred and tax-free accounts helps reduce the risk of future tax shocks.
• Be strategic with annuitization.
Use single premium immediate annuities (SPIAs) and other annuity products to complement and satisfy RMDs while providing stable income.
• Partner with tax experts.
Collaborate with CPAs to handle complex cases like Roth conversions, 1035 exchanges or legacy planning strategies involving inherited annuities.

Final thought

Understanding the intricacies of annuity taxation allows financial advisers to build better, more resilient retirement portfolios for clients.

With proper planning, annuities can provide both lifetime income and confidence as clients become confident in the knowledge that their tax impact is fully considered and accounted.

Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. Our firm is not affiliated with the U.S. government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences. Be sure to consult with a qualified tax adviser before making any decisions regarding your IRA. 4317283 – 3/25

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuities, a type of guaranteed income, can give you peace of mind in retirement. After all, having an annuity means you can count on a payment arriving regularly regardless of how the stock markets are performing.

But is an annuity a must-have? Some 401(k) plan sponsors, insurance companies and money managers think so, but not every financial pro is on board with that assessment.

That’s what Cerulli Associates, the wealth and asset management research firm, found when it recently polled asset managers. In 2019, 42% of asset managers believed a retirement income solution needed a guaranteed component to be effective, but in 2024, only 37% believed that to be true.

The slight shift in sentiment comes as annuities are finding their way into more 401(k) plans, thanks to the SECURE Act 2.0. On the books since the end of 2022, the Act enables annuities to be included in 401(k)s. The idea is to create a lifetime guaranteed income stream for retirees.

While annuities have fans, including among retirement savers, the complexity, fees and nuances associated with this type of financial product are leaving some financial advisers questioning if they are necessary.

“If you look at the results of the survey over five years, there’s more doubt whether or not it’s actually a necessity,” says Idin Eftekhari, senior analyst at Cerulli. “Some folks are now looking at it as it's nice to have, not a need to have.”

Annuities: Is it worth it to give up liquidity?

A big knock on annuities, says Eftekhari, is the fact that you forfeit liquidity when you put money into an annuity. To fund an annuity, you either invest a lump sum or make a series of payments over time, and in exchange, you get paid out at a later date.

Once the free look period, or the window in which you can cancel the annuity, expires, which is typically ten to 30 days, you can no longer access that money without paying penalties and fees.

But if something comes up in retirement that requires you to access a significant amount of capital, you can’t touch the annuity.

That means you’ll have to tap your savings or draw down from other retirement accounts. The less money you have in, say, a 401(k) or IRA, the less opportunity you have to benefit from growth and compounding.

Plus, Eftekhari says a lot of annuities don’t have inflation protection, which means the money you put in today may not be worth the same amount in five, ten, or twenty years when you begin receiving payments.

Some annuities offer inflation protection, but they tend to be more costly. “If most participants were truly educated about what they are getting, they would probably say no, thank you,” says Eftekhari.

Are the fees worth it?

Another factor to consider when it comes to annuities: the fees. Depending on the type of annuity and extra bells and whistles, fees can range from 1.5% to 4% on average. Within a 401(k) plan, it can be difficult to determine the fees. Over the years, those fees can add up and take away from your returns.

“Annuities tend to be quite expensive,” says Jane Delashmutt O’Mara, a certified financial planner at FBB Capital Partners. “If there are any products out there that guarantee something, they come with a price tag. You have to understand what you are paying for and what the price tag is.”

That’s not to say annuities don’t make sense for some individuals. If someone wants to spend down assets to qualify for Medicaid, doesn’t want to invest in the stock markets, or has won a lawsuit or the lottery and has a large sum of cash, then an annuity can make sense, says O’Mara.

They can also make sense in a couple of other instances:

The thought of running out of money in retirement keeps you up at night. Annuities that guarantee income through your lifetime can give you peace of mind and a good night’s sleep. This kind of annuity can be either an immediate annuity or a deferred annuity.

An immediate annuity is typically purchased with a lump sum and begins receiving payments within 12 months or less. A deferred annuity is designed to grow on a tax-deferred basis, providing guaranteed income to the annuitant starting on a particular date they choose. The savings period for deferred annuities can last from a few years to decades, and the money grows over time.

You crave safety but a better return than you can get from a CD. Fixed annuities tend to outperform bank CDs because they are held longer, giving the insurance company more time to invest and grow the money. At last check, a fixed annuity has a yield of around 5% while a bank CD is paying about 3% to 4%.

But an annuity should be part of an overall financial plan, not the only component, says O'Mara. An alternative to an annuity is to build a portfolio of bonds or a bond ladder that generates income each year as the bonds mature, says O’Mara. Spread out over the years, bonds can give predictable income in retirement.

There is a place for guaranteed income

Rick Sweeney, director of insured solutions at RBC Wealth Management, says many clients are worried about outliving their savings and some will turn to an annuity to protect against that. In addition to guaranteed lifetime income, some clients purchase annuities to give them downsize protection.

Typically, the annuities are part of a well-diversified plan that includes different streams of income, he says.

“Annuities are not well suited for everybody," adds Eftekhari. “When you are sitting down reviewing the paperwork (with annuities), it's at least a 40 or 50-page contract you are signing with the insurance company. Most people don’t have time to read the fine print, only to realize after the fact what they purchased.”

A balanced approach

Ultimately, the best approach may be a balanced one, where you have a little bit of everything. That’s the case for clients at Boldin, the maker of financial and retirement software.

Of the company’s 41,000 PlannerPlus subscribers, roughly 3,000 have 100% of their expenses in retirement covered through guaranteed income. The average expenses covered by guaranteed income are 54%. That is typically derived from Social Security, pensions and annuities.

“What people try to do is have enough guaranteed income to cover necessary expenses like food, housing, insurance, health care and transportation, and use their investment portfolio for fun money such as travel, entertainment and gifting,” says Nancy Gates, lead educator & financial coach at Boldin. “The most important thing is to have a long-term financial plan tailored to your personal circumstances.

Related content

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• Are Annuities the New Safe Haven?

Most people are only dimly aware of annuities and how they can help them achieve their financial goals and help ensure they’ll have enough income and savings for retirement.

About 79% of American adults struggle to correctly define an annuity, according to a 2024 Policygenius annuities survey.

A 2023 study by the American College of Financial Services found that respondents ages 50 to 75 scored only 12% on annuity-related questions, ranking their knowledge of annuities below that of Medicare, life insurance and long-term care.

It’s not surprising. The topic is complex, and there are many different types of annuities. Most people hear more about stocks, bonds, insurance and bank certificates of deposit (CDs). Annuities are in a bit of an obscure corner.

Lack of knowledge may contribute to resistance to buying annuities. The Center for Retirement Research at Boston College found that while about half of survey respondents expressed willingness to purchase an annuity at prevailing market rates, only 12% had done so.

On the other hand, a survey by the American Council of Life Insurers found that 54% of retirement savers are considering products that provide guaranteed lifetime income, similar to a pension — in other words, lifetime income annuities. The survey gave no clues on what percentage will actually go forward.

Social Security's uncertain future means you'll need to be more self-reliant

When you’re young, you probably don’t need to know much about annuities because they’re more germane for people in their 50s and older. But once you’re in that age range, it becomes necessary to know the basics about annuities.

They’re not for everyone, but if you don’t know anything about them, you’ll never know if an annuity might be a good choice for you.

It’s important to know at least the basics about annuities because they can be a keystone for successful retirement. Going forward, it’s probable you’ll have to rely more on yourself and less on the government for your retirement income.

Social Security, essentially a pay-as-you-go system, faces a tough future as the population ages. In 1950, there were about 16 workers paying into the system for every retiree.

In 2023, roughly 2.7 covered workers were paying into Social Security for each individual collecting benefits, according to the Social Security Administration.

This ratio is projected to further decline in the coming decades due to demographic shifts, falling to 2.4 workers for each beneficiary in 2035. So, if you’re 55 today, chances are your benefits when you turn 75 may be substantially lower than they are today.

Another possibility is that the full retirement age may be delayed. For those preparing to retire today, the retirement age is 66 to 67 years old. In the future, it could rise to 70 or even older.

Furthermore, few people, other than government workers, have old-fashioned pensions that guarantee lifetime income. Most employers offer 401(k)s or similar plans. Such plans, while great, can expose you to investment risk and volatility and may not guarantee income.

With our Social Security system under growing pressure and the availability of pensions on the decline, the bottom line is that there could be trouble ahead for tomorrow’s retirees. In fact, the Employee Benefit Research Institute’s 2019 study estimated that 40% of U.S. households risk running short of money in retirement.

Annuities offer more tools for successful retirement

One or more annuities can be part of your self-reliant retirement plan so that you won’t run out of money, and equally important, not worry about managing it.

Annuities began as pensions in ancient Rome, providing annual payments for life. Today, many people are somewhat familiar with the concept of income annuities, but that isn’t the only type of annuity, as we’ll see.

An income annuity is a contract that promises to provide an individual income for a fixed period of years or their lifetime. You deposit your money with an insurance company and in return you get contractual guarantees.

Having lifetime income that will keep coming at the same level no matter how long you (and, optionally, your spouse) live promotes peace of mind and reduces worry. It’s “longevity insurance.” In a sense, you’re creating your own private pension.

Another advantage is that you won’t pay any taxes until you start receiving payments. And even then, much of the income will be non-taxable return of premium.

The downside is that you no longer have control over that money. You’re relying on the life insurer to keep its promise. For many people, this is a deal very much worth making, but not everyone is comfortable with it.

Furthermore, because an income annuity is somewhat inflexible and illiquid, it may not be a good choice if you have little in liquid savings or investments.

Income annuities are vastly underused, I believe — and many independent experts agree. Last year, sales totaled $18.5 billion, according to LIMRA. That might sound like a lot, but it is a small amount when compared with other financial vehicles.

So, on one side of the annuity world, we have annuities that guarantee either future (deferred) income or immediate income. The other half of the annuity universe is made up of various types that are designed to help you grow savings for the future.

They can provide interest income, too, which you can receive or plow back into the annuity.

A fixed-rate annuity provides a set interest rate for a fixed number of years, plus your principal is guaranteed, much like a bank certificate of deposit (CD). This type of annuity is called a multi-year guaranteed annuity (MYGA).

If it’s held in a non-qualified account (not in a traditional IRA), the interest is tax-deferred as long as you reinvest it in the annuity. The interest rate usually beats a CD with the same term.

Because fixed-rate annuities are somewhat standardized — the details differ, so make sure you understand the penalties for withdrawals during the penalty period — they’re easy to understand and compare, and they still rank as one of the most popular types of annuities. Sales in 2024 totaled $153.4 billion, according to LIMRA.

A fixed indexed annuity offers the potential for higher interest earnings, pegged to the performance of a market index, such as the S&P 500, while guaranteeing your principal (which is why it’s called “fixed”). It pays a fluctuating interest rate, which can go as low as zero when the stock market declines. Also, there are caps on upside gains.

Over the long term, a fixed indexed annuity stands a good chance of outperforming bonds, CDs and MYGAs. But you have to be able to accept and withstand fluctuating returns. Furthermore, they’re complex, so it takes some time and expert guidance to choose the one that best suits you.

A variable annuity is much like a set of mutual funds within an annuity wrapper that provides tax deferral and optional income and death-benefit guarantees. It is called variable because it doesn’t normally have the principal guarantee that comes with a fixed annuity.

While other types of annuities offer a safe haven for your money, the variable annuity offers the chance for higher gains over time. But the downsides are volatility, the potential for loss and high fees.

Taxes on annuity withdrawals

While non-qualified annuities (those bought with after-tax money) offer tax deferral that can be extended indefinitely, don’t buy a deferred annuity if you may need to withdraw the money before age 59½.

In addition to ordinary income tax on withdrawals of earnings, you’ll also pay a 10% IRS penalty tax. There is one safety valve: The penalty won’t apply if you become permanently disabled.

Annuities can be held in qualified accounts (Roth and traditional IRAs), too, and one interesting choice is the QLAC.

One final important element to keep in mind: Annuities, especially income annuities, are long-term commitments. Choose a financially strong insurer that can fulfill its promises. The industry is strictly regulated by the states and has a good track record.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356.

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• Should You Add an Annuity to Your Retirement Portfolio in 2025?

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuities give you a guaranteed stream of income in retirement, but they aren’t created equal. With hundreds of annuities in the market to choose from, some will cost you more than others.

It doesn’t help that there are a variety of potential fees from administrative costs to commissions that can be hard to spot and will ultimately impact your payouts. How much is too much when it comes to fees, and how do you know if you're paying too much?

“You absolutely have to be mindful of the fees. In some cases, there are a lot of fees associated with them,” says Michael Berkhahn, CFP and vice president of Graham Capital Wealth Management. “If you are purchasing an annuity, you need a good understanding of what you are getting into and if it really fits your ultimate goal.”

Before you can do an apples-to-apples comparison of annuity fees, you have to decide what you are trying to achieve. That will dictate which type of annuity to shop for.

How does an annuity work?

Suppose you want to purchase an annuity for lifetime income only. In that case, the fees will be different than if you are purchasing an annuity that pays out a death benefit to your spouse or that has additional bells and whistles. Known as riders, some of the popular ones include the following:

Guaranteed lifetime minimum withdrawal benefit: This lets you withdraw some of your money from your annuity while you are alive, even if your annuity loses its value. You would only need this rider with a variable annuity.

Guaranteed minimum withdrawal benefit: It ensures the premiums are paid on the annuity contract regardless of how the underlying investments perform.

Guaranteed minimum accumulation benefit: This ensures you will receive payouts at least equal to the amount you spent to purchase the annuity or a percentage of the dollar amount after a predetermined number of years.

Guaranteed minimum income benefit: This also applies to variable annuities and gives you a guaranteed minimum income payout while you are alive, regardless of the performance of the underlying investments. It provides a floor and protection against market volatility.

Death benefit: This ensures beneficiaries receive a payout when you die.

Long-term care rider: If you don’t have long-term care insurance, this rider boosts your monthly payouts to help cover the costs of long-term care.

Cost of living rider: With this rider, your annuity payments will keep pace with inflation.

Disability income rider: If you become disabled or unable to work, this rider pays you a monthly benefit.

“A lot of times with annuities, you get what you pay for,” says Shawn Plummer, founder of The Annuity Expert. “You're not wasting money on fees, you are adding bells and whistles and paying for those add-ons.”

What do different types of annuities cost?

Investors purchase annuities for a variety of reasons, but most commonly they are buying them for either guaranteed lifetime income, tax-deferred growth or to protect a portion of their assets from market risk.

If you are looking for an income stream in retirement and want to keep costs down, then a fixed annuity is the lowest-cost option. With a fixed annuity, fees typically range from nothing to 1.5% depending on whether you add riders to the contract.

With a fixed annuity, the insurance provider guarantees a fixed rate of return for a predetermined period, giving you predictable income in retirement.

It’s similar to a certificate of deposit. You aren’t going to realize stock market returns, but you will know how much you are getting each month, and you don’t have to worry about fees eating away at your income.

Fixed-rate annuities are also the easiest to shop for because there are few to no fees. In that case, you are paying more attention to the payout, says Berkhahn. One insurer may provide a return of 5.2% while another will provide 5.3%.

It’s important to be mindful of the health of the insurance provider. After all, they may give you a much bigger payout, but they may not be around for your lifetime.

A variable annuity, the costliest of the annuities, has fees ranging from 2% to 4% but also has the potential to give you more of a return based on the performance of the investments held within the annuity.

Variable annuities are actively managed, and while they can give you stock market-like returns, there is also downside risk. Yes, you get guaranteed income in retirement, but how much depends on how the underlying assets perform.

“If the intent is lifetime income, then purchasing a fixed annuity would be a lot cheaper than a variable annuity,” says Plummer. “A variable annuity has the most fees.”

Other fees to pay attention to

Commissions: This is the fee that goes to the agent you work with to purchase an annuity. The commission varies based on the type of annuity and its complexity. The more complex, the higher the commission will be. It can range from 1% to 8%, according to Annuity.org.

Administrative fees: These are the fees that go to cover the cost of managing the annuity, recordkeeping, and processing transactions in addition to other administrative costs. These fees are typically under 0.3% of the value of the annuity each year.

These fees are typically disclosed within the prospectus or through disclosures provided by the insurance company or broker. Make sure to ask about them when shopping around.

It’s all about intent

Ultimately, how much you pay in fees boils down to what you want from your annuity. The more bells and whistles, the more costly it will be.

“Do you want protection with upside growth or are you looking for the highest lifetime income, or do you want long-term care protection?” says Plummer, who says you shouldn’t pay more than 1.5% in fees. “In almost every scenario, you are going to pay a fee for something.”

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A little more than 10 years ago, the U.S. government did something right for retirees. It created the QLAC as a way to provide longevity protection on a tax-favored basis using savings in an IRA or other qualified account. Here’s how the bill was framed:

“All Americans deserve security in their later years and need effective tools to make the most of their hard-earned savings,” the IRS said of the rationale for QLAC.

“As boomers approach retirement and life expectancies increase, longevity income annuities [our emphasis] can be an important option to help Americans plan for retirement and ensure they have a regular stream of income for as long as they live.”

As part of new legislation passed in December 2022, the SECURE 2.0 Act addressed many areas of retirement, including increasing the amount that can be invested in a QLAC to $200,000.

As important, the law also eliminated a requirement that limited QLAC premiums to 25% of an individual’s retirement account balance.

Finally, in January 2025 the limit was further increased to $210,000, up from the original $125,000.

Taken together, that means a single investor with $400,000 of IRA assets could more than double their QLAC allocation from $100,000 to $210,000.

What is a QLAC? It's not complicated

A QLAC, or qualifying longevity annuity contract, is issued by insurance companies, most, if not all, rated A or higher. You can purchase a QLAC in a lump sum or in smaller increments, in different amounts at different times and from different insurance carriers. Each QLAC purchase guarantees lifetime income to start in the future as late as age 85. Income can continue for the lifetime of two spouses and can continue to a beneficiary until the premium has been paid out. And each of two spouses can make their own elections with respect to their IRA savings.

Also, you can use the account value from a rollover IRA, 401(k) or tax-sheltered annuity as a source of the QLAC premium.

In today’s market (February 2025 survey), a 62-year-old man can purchase $72,000 of annual lifetime income starting at age 85 for $100,000 from his IRA account. Or a 70-year-old woman can use $200,000 from her account to purchase $81,000 of annual lifetime income starting at age 85.

The amounts are up 87% and 57%, respectively, since they hit a low just three years ago. For a personalized quote, you can use this QLAC calculator.

What are QLAC's tax savings?

In support of QLACs, the government is willing to lower taxable income for retirees by literally billions of dollars a year to help them secure their retirement plans. For that reason alone, it makes sense to consider using the money in your existing IRA, 401(k) or tax-sheltered annuity to purchase a QLAC.

That money will be removed from the calculation of required minimum distributions (RMDs) that start at age 73, and thus your taxable income is lowered.

QLAC payments will be included in taxable income when they start, usually at age 85. Importantly, the taxable income at that time may be reduced if used to pay interest on a mortgage, pay for deductible medical or long-term care expenses or make charitable deductions.

For Sally, the 70-year-old woman cited in our example above, the tax savings on RMDs, assuming a 25% tax bracket, could be worth about $2,000 a year, or accumulating with interest to about $50,000 by age 85.

With more than 4 million people turning 65 each year and nearly 20 million family units already eligible for a QLAC, that could mean billions of dollars in tax savings for retirees. A conservative estimate of the potential benefit is $30 billion to $50 billion per year — a lot of money.

The ways you can deploy a QLAC

The tax-deferral benefit is yours however you deploy a QLAC. By deploy, we mean:

• What configuration of QLAC you elect
• How you intend to spend the QLAC annuity payments

Also, the tax-deferral benefits are for each spouse and their IRA account and for each QLAC you purchase, provided the cumulative purchases stay under the current limit. (By the way, the $210,000 limit will increase each year, and for a 65-year-old today, it could reach $265,000 or more by age 73, when RMDs become mandatory.)

The most popular options as to when you elect to receive QLAC annuity payments are:

• Maximum deferral. A single purchase with annuity payments deferred to age 85. The two examples above were for maximum deferral for investors who were focused on tax benefits and maximum longevity protection.
• Laddered income. Multiple purchases made at one time with income starting at different ages, which enables income to increase in steps, as I wrote about in my article How to Get More Retirement Income From Your 401(k).

Here’s what laddered income could look like with a comparison to the before-tax RMDs. The laddered income buyer is less interested in tax savings and more interested in supplemental income starting before age 85.

As shown in the chart, Sally addresses her inflation risk through a laddering of QLAC income, which grows from $14,000 at 75 to $37,000 at 85. These payments would be guaranteed for as long as Sally is alive. With laddered income as part of your plan, the percentage of income that is safe increases substantially as you age.

Impact of most competitive rates

Annuity payouts on new QLAC purchases don’t stay the same as interest rates go up and down. We’ve been shopping the market for the best annuity rates of return and in the process have seen a greater spread between the industrywide median rates we use in planning and the rates the most competitive companies are quoting.

That means making a QLAC a component of your plan for retirement income today can improve results in a very powerful way.

The benefits for both max deferral of income and laddered income are clear for retirees seeking to keep tax payments low and secure high income in their retirement income plan. My next article will discuss some of the expected and unexpected ways to use that income.

For more information about how to find a QLAC with the best rates, visit Go2Income.com.

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• Curious About a QLAC? SECURE 2.0 Act Gives This Annuity a Boost
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• Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
• How to Grow Your IRA in Retirement Rather Than Spend It Down

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Baby Boomers are reaching the traditional retirement age of 65 in unprecedented numbers, with 30.4 million Americans doing so between 2024 and 2030 alone. This year, we’ve reached the peak of Peak 65, where an average of 11,400 Americans will turn 65 every day, setting a historic milestone, with 4.18 million people reaching the traditional retirement age in a single year.

According to a recent economic analysis published by the Retirement Income Institute, however, two-thirds of them will be challenged to meet their financial needs in retirement, let alone maintain their current standard of living.

More than half (52.5%) of the Peak Boomers have assets of $250,000 or less. Given the likelihood that they’ll spend 20 or more years in retirement, they will likely exhaust their retirement assets and be forced to rely mainly on Social Security, especially later in retirement when health care costs are likely to increase. Yet, Social Security is designed to replace only about 40% of a person’s annual pre-retirement income, on average. An additional 14.6% of Boomers have assets of $250,000 to $500,000, which means they, too, may strain to meet their needs in retirement.

The economic analysis is complemented by the findings of a survey conducted earlier this year of 2,516 U.S. consumers ages 45 to 75, including an oversample of those ages 61 to 65. It found that 51% of those Baby Boomers, the youngest Boomers of this generation, have less than $100,000 in total investable household assets, while 45% of them are already fully retired.

Most surprising is that 49% of these Peak Boomers ages 61 to 65 have already started claiming Social Security payments — including 77% who are already retired — well short of age 70, when monthly benefits are maximized. Forty percent who began claiming Social Security payments did so because they needed the income, while 45% did so because of a disability or inability to work.

There is good news for millions of Peak 65ers, though, if they course-correct and make some changes while there’s still time. The 47.5% of Baby Boomers with assets of more than $250,000, including the 14.6% with assets of $250,000 to $500,000, have the potential to achieve a financially secure retirement, although such an outcome is hardly guaranteed. Those who are on the brink of success should consider these seven ideas to make the most of their resources:

1. Budget, budget, budget

Establish, and live within, a sound budget, consisting of both discretionary and non-discretionary living expenses, that accounts for inflation. Anticipate the likelihood of spending more money earlier in retirement and the need for a health care reserve later in retirement. Baby Boomers with relatively limited assets cannot realistically expect to achieve a financially secure retirement without a budget.

2. Understand the different types of incomes

Understand the practical differences between protected income, which is income that’s guaranteed from Social Security, pensions and annuities, and probable income, which comes from stocks, bonds and other assets that can rise and fall based on the markets. Ideally, use your protected income sources to cover your essential monthly expense needs, and your market investments for your wants and everything else.

3. Tap your real estate holdings for income

Examine the income potential of your home and other holdings as potential income streams in the form of rent, sales or drawdowns from the equity. For roughly two-thirds of Peak Boomers, their home is their largest asset, and many have accumulated substantial equity over the years.

4. Delay full-time retirement

If circumstances allow, continue to generate earned income by working at least part time. Not only will the additional income stretch your existing savings, many Baby Boomers derive satisfaction and find purpose by continuing to work.

5. Claim Social Security as late as possible

Those in or approaching retirement should weigh whether to delay claiming Social Security benefits, until at least full retirement age of 67, as the monthly benefit amount is roughly 8% greater for each year you delay claiming past age 62 up to age 70.

6. Consider a bridge annuity

Instead of leaving substantial money on the table by claiming Social Security benefits early, consider using annuities as a short-term “income bridge” for a fixed number of years between full or partial retirement. A bridge annuity that guarantees monthly income can be a cost-effective means of maximizing Social Security benefits.

7. Seek professional guidance

A Nobel prize-winning economist once said that decumulation is one of the nastiest and hardest problems in finance to solve. So don’t go it alone. It is never too late to benefit from the counsel of a financial professional, even if it’s for help creating a basic retirement plan. Depending on your needs, they can provide guidance on issues ranging from income and withdrawal strategies to longevity planning and tax efficiency. In addition to helping to make the most of your assets, a financial planner can also provide peace of mind.

The greatest surge of retirement-age Americans in history is a welcome milestone for millions of Baby Boomers looking forward to retirement. Those who adopt these seven best practices have the best chance to realize the financially secure retirement they have long worked toward.

Cyrus Bamji is recognized as one of the foremost experts and innovators on disrupting and modernizing our concept of retirement. He is currently Chief Strategy & Communications Officer at the Alliance for Lifetime Income, a nonprofit consumer education association in Washington, D.C., where he leads financial education, thought-leadership and consumer outreach strategies to help Americans think and plan holistically for life in retirement.

Jason J. Fichtner, PhD, is a Senior Fellow and Head of the Retirement Income Institute, a scholarly research and thought-leadership program of the Alliance for Lifetime Income (ALI), where he manages the research, strategy and operations of the Institute. He is widely recognized as a leading researcher and expert on Social Security, federal tax and budget policy, and retirement security.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

An annuity is a way to get a guaranteed stream of income in retirement. But not all annuities are the same, and if you select the wrong one, it may cost more money than it has to.

When it comes to annuities there are lots of things to consider, from the type of annuity to the surrender period. Not to mention the financial health of the insurance company backing the annuity. After all, if the company goes under, so does the money you invested in the annuity.

That’s why it’s so important to do your homework and read the fine print before selecting an annuity.

“Choosing the wrong annuity can result in high fees, poor returns and limited liquidity,” says Ken Nuss, founder and CEO of AnnuityAdvantage, an online provider of fixed-rate, fixed-indexed, and lifetime income.

“For example, if you purchase an annuity with excessive fees or a long surrender period, you may lose a significant portion of your investment if you need to withdraw early," he said.

To assist you in your decision making, here's a look at five common mistakes investors make when shopping for an annuity and how to avoid them.

1. Choosing the wrong type of annuity

There is no one-size-fits-all annuity on the market, although Nuss says some are presented that way. In reality there are different types of annuities that accomplish different goals depending on what you are aiming to achieve. Choose the wrong one and you may not accomplish your income generating goal. The most common types of annuities include:

-Fixed annuity: Payments are made monthly for the same amount. With a fixed annuity you know exactly how much you’ll receive monthly.

-Variable annuity: The payouts are tied to the rise and fall of the underlying investment.

-Indexed annuity: The payouts are tied to the performance of an index such as the S&P 500.

-Immediate annuity: With this type of annuity you typically purchase it with a lump sum and then begin receiving payments within 12 months or less. An immediate annuity can be fixed or variable.

-Income for life annuity: Payouts are for life no matter what age you live to. The size of the payments depend on the account size and the life expectancy of the person holding the annuity. This type of annuity can be fixed or variable.

2. Glossing over total cost details

Fees can eat away at your returns and that is true of annuities. Different annuities have different fee structures and if you aren’t aware of how they add up or impact the performance, you may be in for an unwelcome surprise with little recourse.

Sure there is the free look period or the window in which annuity holders can cancel the contract, but after that you’ll face penalties. Typically the free look period is between ten and thirty days.

There is a 1035 exchange, which allows you to transfer your annuity into a different one without tax consequence, but you could still face surrender charges.

“Each annuity exchange must be analyzed individually for suitability and to determine if it is ultimately in the client’s best interest, particularly if the existing annuity is still subject to surrender penalties,” says Nuss.

Some of the fees to keep in mind when shopping for an annuity include:

-Commissions: This is the fee that goes to the agent you work with to purchase an annuity. The commission varies based on the type of annuity and the complexity of it. The more complex, the higher the commission will be. It can range from 1% to 8%, according to Annuity.org.

-Administrative fees: These are the fees that go to cover the cost of managing the annuity, recordkeeping and process transactions in addition to other administrative costs. This fee is typically under 0.3% of the value of the annuity each year.

-Surrender charge: A penalty that’s deducted from the account value if money is withdrawn from the annuity prematurely. The surrender charge can vary based on the insurance company, the age of the annuity and amount withdrawn.

-Rider: These are additional benefits you can add to your annuity for a fee. Common types of annuity riders include living benefits and death benefits.

3. Shopping on rate or performance alone

Performance and rates do matter, but shouldn't automatically rule out a specific annuity provider. After all you may get a cheaper rate or a higher payout on one annuity but the quality of the insurance provider may be questionable.

Plus you may end up with a product that is harder to understand or contains higher internal fees that aren’t transparent.

“It is vital to evaluate the annuity carrier for their financial stability and client service,” says Stephen Kates, principal financial analyst at Annuity.org.

The Federal Deposit Insurance Corp. doesn’t cover annuities like bank deposits, but they are backed by insurance guaranty associations that protect insurance policyholders and their beneficiaries if the insurance company becomes insolvent and can no longer meet its obligations. Every state, including the District of Columbia and Puerto Rico, has a state insurance guaranty association.

When selecting an annuity, brokers typically look at how long the insurance company has been in business, its balance sheet and its rating from the three rating agencies AM Best, Moody’s and Standard & Poor’s.

4. Overlooking surrender periods and liquidity provisions

Depending on the annuity you select, you could face long surrender periods where withdrawing money early could result in penalties. If you don’t check these details before purchasing an annuity you could end up in a situation where you can’t access the money when you need it.

“Liquidity cannot be overvalued, and locking up your money into a single growth strategy for 10+ years should be considered carefully,” says Kates. Going with a long surrender period also limits your flexibility. “Over a decade-long surrender period, circumstances may change, or opportunities may arise which could change how you view the utility of your products,” says Kates.

Another thing to consider: built-in liquidity provision. They may or may not allow for penalty free withdrawals of interest earnings or a percentage of the contract value annually, says Nuss.

5. Blindly trusting the insurance producer or financial advisor

While recommendations are nice, that doesn’t mean you shouldn’t do your homework on your own before deciding on an annuity. The internet can help. There are online tools available to narrow down your annuity choices.

“Comparison and research are important. Without knowing what you want, it can be hard to find the right product,” says Kates.

“Consider multiple products from different carriers to gain a good perspective on what is available in the market as a solution for your particular goals. If you are working with an agent, understand how that impacts the products you see. Some agents only sell one carrier's products, while other agents sell multiple carriers' products.”

Related content

• Annuity Definition and 14 Terms You Need to Know
• Annuities: What They Are and How They Work
• Annuity Payouts: How Much Can You Get Each Month?
• 10 Ways to Generate Retirement Income

People tend to think of annuities as set-it-and-forget-it investments — and for some, that’s one of the major draws. Annuities can provide predictable payouts for retirees seeking a reliable income source, without much of the worry that can come with other, riskier investments.

But even if you’re satisfied with your current annuity (or annuities), it can still make sense to review your contract(s) to see if you can do better. With today’s higher interest rates and evolving annuities, you may be able to benefit from replacing an older annuity with one that could potentially boost your income and add to the value of your contract.

Here are just a few reasons why you may want to consider an annuity “refresh.”

1. Higher interest rates

When interest rates rise, annuity income rates typically increase as well. Interest rates have soared in recent years: The Federal Reserve hiked interest rates 11 times between March 2022 and July 2023. If you purchased your annuity before March 2022, you may not be benefiting from those higher rates. A replacement annuity could help you maximize your payments, and it shouldn’t cost you anything to do some comparison shopping.

2. The cost of inflation

Rising inflation can take a toll on your income plan. Even in the best of times, inflation can slowly erode your purchasing power. But the surge in gas, food, housing and other consumer prices we’ve experienced since 2021 has been a good reminder of the significant impact high inflation can have on a household — particularly for retirees living on a fixed income.

If you purchased a deferred income annuity prior to 2021 to help bolster your Social Security benefits and other reliable retirement income sources, you may find that replacing it with a different annuity can help put your budget back on track.

3. Newer products may suit you better

A new annuity may offer better or more relevant options than your current contract. Thanks to the increasing popularity of annuities, the market has grown more competitive. Insurance companies are now offering a wider range of products to meet the demand and the diverse needs of an aging population. Most advisers recommend evaluating your financial plan at least once a year — and more often if your retirement goals change, economic conditions have you feeling uncertain or important life events have occurred that require making some updates.

Your annuity’s performance should be part of that review, and you can use that time to discuss how your annuity needs may have been affected by any changes to your health, your marital status, beneficiary designations, the amount of income you’ll require or your Social Security start date. You may choose to move to a different type of annuity (a fixed-index annuity instead of a variable annuity, for example), get rid of expensive or unnecessary riders, or find more favorable terms that are a better fit for you going forward.

Tax implications and other considerations

Impending cuts to the Fed’s benchmark rate may lead to lower rates and less competitive annuity offerings down the road, so this is a good time to look at the pros and cons of an annuity exchange. If you don’t have a planned review scheduled soon, you may want to give your financial adviser a call to ask about comparing your current annuity with newer annuities available on the market.

Of course, it’s important to consider any tax implications, potential surrender charges and other costs or consequences that could make this the wrong time to replace an in-force annuity. And, as with any financial move, you’ll want to ensure that you understand the terms of the new annuity and that it’s a good fit for your objectives.

Any decisions regarding an annuity purchase — whether you’re getting one for the first time, considering a refinance or wondering how much of your money to commit — should be made with the help of a properly licensed and credentialed financial adviser who has experience with these complex contracts.

Kim Franke-Folstad contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

Insurance products are offered through the insurance business Generations Retirement Group, LLC. Generations Retirement Group, LLC is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Generations Retirement Group, LLC are not subject to Investment Adviser requirements. 02839010-01/25

Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.

Related Content

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Acing all the key components of retirement planning is akin to getting a perfect score on the SAT college entrance exam. It’s not impossible. But for most people, it’s a long shot. And just as a prospective college student may seek help preparing for the SAT, it often makes financial sense for everyday Joe and Jane 401(k) plan savers to seek a financial adviser to help them map out a retirement strategy.

Even 401(k) do-it-yourselfers who did just fine during the nest-egg accumulation stage realize that there’s a lot more complexity in the so-called “distribution phase” when work paychecks stop and paying the monthly bills relies on the retiree’s own assets and retirement plan.

It’s not easy for a DIYer to figure out how much income they’ll need for retirement. Key questions may seem straightforward, but they may quickly get complicated. For example: what funds should I invest in; how should I divvy up assets between stocks and bonds; when should I take Social Security; how should I manage required minimum distributions (RMDs); what financial accounts should I withdraw money from to save on taxes; and should I convert a traditional IRA to a Roth IRA?

That’s a mouthful. However, the laundry list of retirement puzzle pieces is designed to illustrate that coming up with a perfect retirement plan on your own is challenging. For most people, it’s simply too heavy a lift.

When the job of overseeing your retirement-related finances becomes too complex or overwhelming, getting help from a financial adviser could relieve some of the burden. Indeed, working with a financial adviser acting as a fiduciary (e.g., someone who puts your best interests ahead of their own) can go a long way toward helping you get your finances on track, whether you’re nearing retirement or already enjoying your golden years.

The financial adviser, who offers services ranging from retirement planning to portfolio advice, risk management, and tax planning, will assess your financial position holistically and develop a financial plan to help you set and achieve your goals and desired lifestyle in retirement.

So, if you’re looking for a financial pro to help you plan for retirement, where do you start?

How to find a financial adviser for retirement

Word of mouth: One way to jumpstart your search for a financial adviser who specializes in retirement planning is to ask friends, family members, and professional contacts for referrals. Getting recommendations from people you trust, especially your accountant, attorney and other so-called “centers of influence,” can get the ball moving.

Look into a large brokerage firm: Another good option, especially if you already have a relationship with an investment company or brokerage, such as Fidelity Investments, Charles Schwab, Vanguard, or T. Rowe Price, to name a few, is to investigate the relatively low-cost advisory options, retirement planning solutions, and investment options these well-known firms offer. These services typically range from digital advice to a more traditional advisory relationship that includes your own dedicated adviser. In fact, many financial firms, including Schwab and Fidelity, have an adviser search tool on their websites,

Use industry group search tools. Tapping the resources of industry groups representing financial advisers and financial planners is also helpful. For example, the National Association of Personal Financial Advisors (NAPFA) helps you initiate contact with a financial adviser in just a few clicks. Similarly, the Certified Financial Planner Board offers a search tool to find advisers who have earned the Certified Financial Planner (CFP) designation. Some sites allow you to search by zip code, assets under management, area of specialty (such as retirement planning or estate planning), and by the type of client the adviser focuses on (e.g., women, retirees, or LGBTQ).

Financial planning networks: These networks are another excellent resource for locating financial advisers, according to NerdWallet. Examples include XY Planning Network, whose advisers hold the CFP designation and offer virtual services; and CHIP, which focuses on matching clients with African American, Hispanic, and Latinx financial advisers.

Check each adviser's certifications. You’ll run into acronyms for financial certifications and credentials when searching for financial professionals. A CFP, for example, stands for a certified financial planner. This financial professional has passed a comprehensive exam on financial planning topics and has met a minimum threshold for hours worked in a financial planning capacity. CFPs are held to a standard that requires them to act as fiduciaries. You may also encounter a ChFC, which stands for Chartered Financial Consultant, or an RIA, a Registered Investment Advisor.

Do your due diligence. No matter their credentials, ensure you check their professional background, Fidelity Investments advises. “That means treating them like you would any other person you were considering hiring for a job: by looking at their resume or LinkedIn as well as asking for references,” Fidelity noted in a blog post. You can also run a free background check using the Securities and Exchange Commission’s Investment Advisor Public Disclosure database or FINRA’s BrokerCheck system.

Ask these questions before you hire a financial adviser

Michael Cherny, head of Citizens Wealth Management Advisors, recommends getting to know a potential financial adviser better by asking key questions during your first introductory meeting. “Your first meeting can help determine if the financial advisor is a good match for you professionally and personally,” Cherny wrote in a blog post.

Here are the questions Cherney recommends you ask:

• What are your experiences and qualifications? Find out how long they’ve been in the industry and if they have any specialty designations like a CFP or if they specialize in retirement planning.
• Have you worked with people like me before? You can often find a better match, says Cherny, if the adviser commonly works with clients your age and income range and who share similar retirement goals.
• Do you manage investments, prepare financial plans, or both? Make sure the adviser specializes in the area you need help.
• How do you approach investing? You want to ensure that the adviser invests in a way that you are comfortable with and that aligns with your risk tolerance and goals.
• How will we communicate? Get a sense of how frequently you’ll touch base with your adviser. Will it be a monthly, quarterly, or annual check-in? And find out whether you will meet by phone, in person, or digitally. Ask to see a demonstration of the financial software your adviser uses.
• How do you get paid? As noted below, financial advisers are compensated in several different ways. They can charge you based on the amount of money in your account, by the hour, or a flat fee. So, make sure you find out what payment system will be used and that you’re comfortable with that arrangement. “You may also find advisers who earn commissions by selling investments,” says Cherny. Commission arrangements should be evaluated carefully, as advisers can earn commissions by putting you into specific mutual funds or other types of investments when there might be lower-fee options available.

How much do financial advisers charge?

The cost of a financial adviser depends on how the financial professional charges for their services. Here are the common pricing structures:

Assets Under Management. Often, financial advisers charge a percentage based on assets under management — or how much of your money they manage. The industry median charge is 1% (meaning half charge less and half charge more), according to Fidelity. So, if a financial adviser is managing $500,000 of your money and charges 1% of assets under management, their services would cost you $5,000 per year. But it’s possible to get advice for less due to the competitive nature of the business. So, shop around and compare the costs for advice based on assets under management.

Hourly. Some charge by the hour, not by the balance in your account. Rates range from $200 to $400, according to financial website NerdWallet. Going the hourly rate route is a good option if you just want to set up, say, a basic retirement savings plan, or you want an adviser to analyze the holdings and asset allocation in your 401(k) to see how much income that will generate, as well as let you know if you’re on track for retirement or whether any tweaks to your portfolio are necessary to reach your goals.

Flat fee. Some financial advisers charge a set fee based on the work they do. This pay structure is akin to an à la carte menu at a restaurant, where each menu item you select comes with its own charge. A financial adviser, for example, may quote you a set one-time fee to create a comprehensive financial plan for you.

Should I use a robo-adviser to save money?

Not every investor has the time or money to hire a real-life financial adviser to help them with retirement planning. Some people have simple goals, such as saving for retirement or planning a 4% annual withdrawal strategy, and therefore don’t require a comprehensive retirement financial plan. For these people, a robo-adviser may be a good option. Robo-advisers can deliver digital portfolio management and asset allocation decisions at a fraction of the cost of a traditional adviser.

There are several factors to consider when choosing the best robo-adviser for you.

Keep in mind that some digital robo-advisers, including Facet Wealth and Empower, as well as many big brokerages and mutual fund companies, also offer virtual access to a human financial adviser if a financial plan is needed.

Red flags when hiring a financial adviser — avoid the sharks

Zoe, a wealth platform that vets independent financial advisers and connects them with people seeking advisers, highlights key red flags to watch out for when shopping for an adviser.

For one, you’ll want to think twice about joining forces with an adviser who focuses on short-term performance rather than a long-term plan. You should also tread carefully with advisers who claim to consistently outperform the market. Advisers who push products, such as mutual funds or annuities, for which they earn a commission, are another red flag. It’s also important to vet financial advisers to ensure they have no record of unethical or illegal behavior.

Read More

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How much money can you safely withdraw from your investment portfolio each year during retirement?

One answer comes from a financial adviser who 30 years ago weighed the past performance of the stock and bond markets in a portfolio composed of 60% equities and 40% bonds. He calculated that retirees could safely withdraw 4% of their savings during the year they retire and adjust that amount for inflation each subsequent year. He claimed a retiree wouldn’t run out of money for at least 30 years of retirement under this plan.

As a rough guideline, the 4% rule has some merit, but it’s far from a foolproof strategy. At the very least, it exposes early retirees to risk because, according to theory, it assures only 30 years of solvency. If you retire at 60, for instance, you’re likely to run out of money once you reach 91, according to this theory. But that’s not the only risk.

Volatility can torpedo your plan

The biggest risk is market volatility, especially in the early years of retirement. Suppose Mr. and Mrs. Doe have a $1.67 million portfolio, invested 60-40 stocks and bonds — meaning they have just over $1 million in stocks and $670,000 in bonds. Say that in year one, their $1 million stock portfolio drops by 26%. If they also make a $40,000 withdrawal, their stocks would be worth just $700,000. The stock market would have to have a terrific multi-year run to make up for that loss plus future withdrawals. It could start their equities on a spiral toward zero prematurely.

Suppose their 40% bond allocation ($670,000) returned 4% that year, so there’d be no loss of value after a 4% withdrawal. That provides a nice cushion, and the couple could instead take all or most of their withdrawal from the bond portfolio — but that would leave them overly invested in stocks.

One way to reduce the risk is to lower the stock proportion. If you went with 40% stocks and 60% bonds to start, you’d have less risk because bonds are theoretically less volatile. But stocks, though more volatile, have given higher returns over time.

A way to ensure you won't run out

If you could predict exactly how long you (and your spouse, if you’re married) will live, it would simplify planning. But you can’t, and you may exceed the average by a wide margin. This is called longevity risk.

A lifetime income annuity lets you transfer this risk to an insurance company. Essentially, you’re creating a guaranteed lifetime pension. In return for a lump-sum payment, the insurer guarantees a stream of income for life.

It works much like any other form of insurance. Annuity owners who die younger than average subsidize those who live past their life expectancy. It’s the opposite of life insurance, where policyholders who live to a ripe old age subsidize insureds who pass early.

An income annuity can cover a single person or a married couple. A couple choosing the joint option ensures the same income will flow as long as either spouse is living. This option pays somewhat less income because it’s more likely that at least one spouse will live to a very old age.

The income annuity can be either immediate or deferred, with payments starting at a future date you choose.

Some tax implications

An income annuity pays more income than other vehicles because each income payment includes both non-taxable return of principal and taxable interest until your principal has been repaid. This assumes you’re using nonqualified funds — that is, an annuity that’s not in an IRA or other qualified retirement plan.

You may think, “Well, what’s the big deal since much of the income is just my own money coming back to me!” But remember, that ample income will keep flowing to you even after you’ve gotten all your money back if you live long enough. (Once that happens, the payments become fully taxable.) That’s the longevity insurance aspect.

Suppose Mr. and Mrs. Doe, both age 65, purchase a joint life annuity with $500,000 of nonqualified funds. As of January 2025, they could get up to $2,784 of monthly income, of which just $1,116 is taxable for the first 25 years of the contract. After that, the entire amount would be taxable.

The product they chose offers no payment to their heirs should both die before the principal is repaid. If they chose an installment-refund option that guarantees their heirs would inherit any unpaid principal, the monthly benefit would be slightly lower.

A higher-yielding, safe alternative to CDs and bonds

Retirees who buy an income annuity won’t need to have as much money in fixed-income vehicles, but just about all retirees need some funds in that bucket. This bucket includes bonds of various types (as individual bonds or bond funds), money-market funds, bank certificates of deposit and CD-like fixed-rate annuities known as multi-year guaranteed annuities (MYGAs.)

Each of these options has its pros and cons, and determining which mix best suits your needs takes some thought. Retirees and people about to retire, however, should consider MYGAs because rates are attractive today.

Like a CD, a MYGA pays a guaranteed interest rate for a set period, usually two to 10 years. There’s no sales charge, so all of your money goes to work for you immediately. Because nonqualified interest is tax-deferred until withdrawn, it can accumulate faster.

While annuities are not FDIC-insured, they are covered by state guaranty associations, up to certain limits, which vary by state. While this is a valuable backstop, it’s unlikely you’ll ever need to rely on it, especially if you choose a financially strong issuer.

How MYGAs can fill a gap

Today, you can get a great rate on a MYGA and lock it in for whatever term you’re comfortable with. For instance, you can earn up to 5.60% for a six-year guarantee or up to 5.55% for a 10-year term. If you only want to commit for two years, you can still get up to 5.20%.

Most MYGAs offer significant liquidity. Many let you take out up to 10% of the current value annually, penalty-free, after the first year. This makes them suitable for retirees who need income. Some annuities, however, have lower amounts or penalize all withdrawals during the term.

If you have one or more MYGAs that permit ample withdrawals, it provides great flexibility. Suppose the Does have a great year with their stocks, which are up 25%. They might decide to withdraw the entire 4% from their stock portfolio that year and leave all their annuity interest untouched and tax-deferred.

The following year, the market declines 15%, so they decide to use their annuities to fund the bulk of their 4% withdrawals. MYGAs with liquidity would let them tap their equities when the market is up and not be forced to sell when it’s down. (Note: Withdrawals of annuity interest before age 59½ are normally subject to a 10% IRS penalty.)

The best strategy for withdrawing money in retirement takes thought and planning and choosing the optimal financial vehicles. Income annuities and/or fixed-rate annuities may be a suitable choice for you.

Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities since 1999. Ken is a nationally recognized annuity expert quoted in national media and a widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356.

Want more guidance on retirement savings? Sign up for Kiplinger's six-week series, Invest for Retirement.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Annuities can provide you with guaranteed income in retirement, but the amount of annuity payouts you receive each month depends on several factors. For example, your age, gender, amount invested, interest rate, life expectancy, and the type of annuity you choose will all determine how much income you can expect.

For retirees seeking a steady stream of income, an "immediate annuity" is a popular choice. This type of annuity converts the amount you invest (usually a lump sum at the start of the annuity) into regular payments over a set period or for your lifetime. Immediate annuities may be fixed or variable interest.

You can invest as much as you want in an annuity, but balances tend to range from $200,000 to $1 million, according to Ken Nuss, founder and CEO of AnnuityAdvantage. That doesn’t mean you can’t purchase an annuity with $50,000 or $100,000. It's up to you.

How do interest rates affect annuity payouts?

The interest rate set by the Federal Reserve is a key factor in how much your annuity will pay you each month. The higher the interest rate, the more money you get.

“What ultimately impacts the payout is the expected return the insurance company gets on the premium,” says Stephen Kates, formerly a principal financial analyst at Annuity.org. “The higher the rates are, the better.” Beyond interest rate, here are the factors that impact your annuity payment.

Amount deposited: The more you deposit in the annuity, the more of a payout you’ll receive.

Age: The older you are when purchasing an annuity, the higher the payment. The insurance company doesn’t expect you to live as long as someone who purchases an annuity at a younger age, thus the higher payment.

Gender: Since women tend to live longer than men, the payment is typically smaller for females than males. At last check, the life expectancy for males and females in the U.S. is 74.8 years and 80.2 years, respectively.

Premium amount: A higher initial premium will yield a higher monthly payment. Once you purchase an annuity, however, you cannot access the money without facing potential penalties and fees.

Payout choice: With an immediate annuity, you can have it pay you until your death, which is known as a "single-life payout." Or, you may have it continue to pay a survivor or beneficiary, known as a "joint" or "survivor payout." Your monthly annuity payout will be lower than with a single-life payout option in that type of annuity.

Period of payouts: If you choose to guarantee payments for your lifetime, your payout will be smaller than if you selected a ten-year term. Many retirees select a lifetime payout to guarantee income for the long haul.

What are immediate annuities?

Immediate annuities can be fixed, variable or indexed. With a fixed immediate annuity the interest rate is fixed when the contract is signed, which gives you that protection from fluctuations in the markets. With a variable annuity, payments fluctuate based on the performance of the underlying investment.

An indexed annuity payout is linked to the performance of a specific market index. A fixed immediate annuity typically has the smallest return but it is the safest and most consistent. You know what you are getting paid. There are no surprises.

How much does a $100,000 annuity pay per month?

Before you purchase an immediate annuity, you probably want to know how much income it will give you each month. That will help you determine how much money you want to annuitize and how it will impact your monthly budget.

While all of the factors discussed above impact the annuity payout, you can get a general idea of how much your annuity payout will be monthly below.

We’ve based the payouts on a fixed immediate, life-only annuity for a 65-year-old buyer. Data is provided by Annuity.org.

Immediate annuity amount: $50,000
Buyer age: 65
Buyer sex: Female
Payout: $300

Immediate annuity amount: $50,000
Buyer age: 65
Buyer sex: Male
Payout: $314

Immediate annuity amount: $100,00
Buyer age: 65
Buyer sex: Female
Payout: $599

Immediate annuity amount: $100,00
Buyer age: 65
Buyer sex: Male
Payout: $629

Immediate annuity amount: $200,00
Buyer age: 65
Buyer sex: Female
Payout: $1,199

Immediate annuity amount: $200,00
Buyer age: 65
Buyer sex: Male
Payout: $1,258

Immediate annuity amount: $250,000
Buyer age: 65
Buyer sex: Female
Payout: $1,498

Immediate annuity amount: $250,000
Buyer age: 65
Buyer sex: Male
Payout: $1,572

Immediate annuity amount: $300,000
Buyer age: 65
Buyer sex: Female
Payout: $1,798

Immediate annuity amount: $300,000
Buyers age: 65
Buyers sex: Male
Payout: $1,886

Immediate annuity amount: $500,000
Buyer age: 65
Buyer sex: Female
Payout: $2,997

Immediate annuity amount: $500,000
Buyer age: 65
Buyer sex: Male
Payout: $3,144

Immediate annuity amount: $750,000
Buyer age: 65
Buyer sex: Female
Payout: $4,495

Immediate annuity amount: $750,000
Buyer age: 65
Buyer sex: Male
Payout: $4,716

Immediate annuity amount: $1 million
Buyer age: 65
Buyer sex: Female
Payout: $5,993

Immediate annuity amount: $1 million
Buyer age: 65
Buyer sex: Male
Payout: $6,288

What are joint annuities?

For married couples a joint annuity is another popular choice. With a joint annuity two people, usually spouses, are named as annuitants and have the right to receive payments.

Joint annuities are designed with retired couples in mind who want guaranteed monthly income that continues after either one of the spouses is alive. Payments tend to be lower but they also tend to last longer.

A joint annuity provides a steady stream of monthly income and peace of mind knowing when you pass your spouse can still revieve the income. It also prevents the spouses from outliving their income in retirement, a real fear for many retirees.

How much does a $100,000 joint annuity pay per month?

With a joint annuity, the monthly payout is going to be smaller. Here’s a look at how much. We’ve based the payouts on a fixed immediate, life-only annuity, with both buyers aged 65. Data is provided by Annuity.org.

Joint annuity amount: $50,000
Buyers' age: 65
Payout: $280

Joint annuity amount: $100,00
Buyers' age: 65
Payout: $561

Joint annuity amount: $200,00
Buyers' age: 65
Payout: $1,122

Joint annuity amount: $250,000
Buyers' age: 65
Payout: $1,403

Joint annuity amount: $300,000
Buyers' age: 65
Payout: $1,684

Immediate annuity amount: $750,000
Buyers' age: 65
Payout: $4,212

Knowledge is power

Annuities are a way to guarantee income for your lifetime, but many factors impact how much of an annuity payout you’ll receive.

Knowing how much you can get each month based on different contract sizes can help you plan your cash flow when you do decide to retire.

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