Annuities Provide Peace of Mind and Lifetime Income
And while they may be a good supplemental income strategy for retirement, they may not be the best return on investment in all instances. Here’s what to consider.


Editor’s note: This is part three of a five-part series on supplemental income streams in retirement. Part one, Could Supplemental Income Strategies Work for Your Retirement?, is an introduction to the series. Part two is A Managed Account Offers Optimization and Tax Efficiency. Part four is Three Investments That Put Your Money to Work With Less Risk. Part five is That Cash in Your Emergency Fund Doesn't Have to Be Idle.
If you are in or near retirement, it can be exhausting watching the market swing back and forth while worrying if your money will last for your lifetime. What if you could help supplement your Social Security benefits and your retirement assets with income that may be protected from the forces of economic volatility?
The good news is you can. There are several ways to help generate income that may be sheltered from the ups and downs of the stock market. One way to generate that income is through an annuity.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Generally, annuities work by paying a sum of money that is then invested and pays the purchaser an income over a set period of time. There are a variety of different structures for how annuities can be funded or paid out based on your individual needs. For instance, you can structure an annuity to pay out over the course of just a few years or for the rest of your life.
Typically, the first step when considering an annuity is to have a conversation with a financial adviser. You should specifically discuss how you want to fund your annuity, when you’ll need to start receiving income from the annuity and what type of annuity is best for you based on your risk tolerance. Some advantages of annuities with income for a lifetime include:
- Provide flexibility to create a plan with payment and payout parameters that fit your financial needs
- Let you live the life for which you planned by creating sufficient income in retirement
- Help eliminate the risk that you will outlive your assets
- Help prevent the potential that losses in the early years negatively affect the income you receive in the later years of retirement
- Include provisions that can help adjust payouts for inflation
Lifetime income adjusted for inflation may have you wondering why you might even bother to consider another alternative. As with anything, though, it’s important to know that annuities aren’t a fix-all financial instrument. They’re a good solution for lifetime income but may not be the best return on investment in all instances.
The flip side of that rate of return is that you may limit the amount of benefit you receive compared to a more aggressive investment vehicle depending on how your annuity is structured. For that reason, annuities are not often recommended to younger investors who may have more time to weather the ebbs and flows of the markets.
Make sure you don’t need access to your money too soon
Additionally, annuities are not generally beneficial to those who may need immediate access to a larger sum of money. Annuities often carry a substantial cost if you need early access to your principal.
A financial adviser can help you work through considerations such as purchases, emergencies or family dynamics that may impact your ability to invest your retirement assets in an annuity. Total fees can often be substantial if you want your annuity to include a cost-of-living adjustment, or if you want it to transfer to a beneficiary upon your death.
Without a provision transferring an annuity to a beneficiary, the issuer is often entitled to whatever may remain of your principal investment in the event you don’t outlive the annuity payments.
Lackluster return rates, challenges to accessing your principal investment and add-on costs are three potential downfalls of annuities. Other potential challenges include:
- Forfeit of principal upon death
- Annuities are not FDIC-insured, so they rely on the solvency of the issuer
- Earnings may be taxed
- Additional fees for cost-of-living adjustments, access to principal and death benefits
An annuity is intended to bring you peace of mind through lifetime income and can be an effective financial instrument to help provide supplemental income for your golden years. Your adviser can help you determine if an annuity is right for your lifestyle and financial goals, or if a different investment strategy may be more effective for you.
Next week, look for part four in the series, about investments that provide steadier returns and fewer fluctuations to your principal.
The other articles in this series:
Part one: Could Supplemental Income Strategies Work for Your Retirement?
Part two: A Managed Account Offers Optimization and Tax Efficiency
Part four: Three Investments That Put Your Money to Work With Less Risk
Part five: That Cash in Your Emergency Fund Doesn't Have to Be Idle
related content
- Why So Many Experts Consider Annuities a Win for Retirees
- What Are Fixed Index Annuities, and How Do They Work?
- Annuities Are the Swiss Army Knife of Personal Finance
- Considering Annuities? How to Find the Right One for You
- Are Bonus Annuities a Good Deal?
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Rich Guerrini is the President and Chief Executive Officer of PNC Investments. In his role, he is responsible for all sales, operations, risk and compliance activities for the retail investments organization. Prior to his current responsibilities, Guerrini was Executive Vice President and Managing Director of Alternative Investments for PNC Investments and was responsible for development and rollout of the PNC Investment Center and PNC’s web-based investment offering.
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have Millions
Private market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It Helps
Saving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard About
Timing is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional Strain
Early conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
The new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)
A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold Shines
The third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial Adviser
If you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.