So, you’re interested in having guaranteed income as part of your retirement strategy and looking for sources beyond Social Security. That can lead to considering adding an annuity to your portfolio and wading into all of the different products out there. And there are so many annuities out there that it can feel overwhelming.
The thing about selecting an annuity is that everyone is seeking something different from adding an annuity to their portfolio. So there isn’t a one-size-fits-all solution.
Picking an annuity is sort of like buying a car — all car buyers are looking for a vehicle to get them from point A to point B. But there are so many considerations beyond that. Some factors are basic, like how many passengers it needs to transport. Others are more specific, like if you want heated seats or a sunroof. Annuities are similar in a way — they can help you get to and through retirement with varying features.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
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.
Roles of annuities
Before you start looking at different products, you’ll want to think about what role you want an annuity to play in your portfolio. The way you want this asset to complement the rest of your financial portfolio can help in determining what kind of annuity may be appropriate and then which specific product may work well for you.
One common reason to add an annuity to a portfolio is to guarantee a portion of your retirement income. Still, there are other roles for an annuity to play. Depending on your life stage and how close you are to retirement, the role you want an annuity to play in your portfolio may differ. You may want a level of protection for some of your assets in an annuity so you can take greater risk elsewhere in your portfolio. You may be seeking ways to manage taxes or other risks to your retirement. You want to understand why you’re adding an annuity to your portfolio so you can pick one that can help address your needs.
Three types of annuities
Let’s go through some of the types of annuities and some considerations as you look at products. To be sure, you’ll want the guidance of a financial professional and a qualified tax adviser for any tax-related concerns before making a decision.
The main categories of annuities to consider are traditional variable annuities, registered index linked annuities (RILAs) and fixed annuities.
A traditional variable annuity offers growth potential through a range of investment options. The value of the annuity will depend on the performance of the investment options selected — the underlying investments may include equity, bonds or cash equivalents. This financial vehicle is designed to help with retirement and other long-term goals. Variable annuities offer guaranteed lifetime income, a death benefit (generally available during the accumulation phase) and tax-deferred growth potential.
A RILA straddles a level of protection and growth potential with gains or losses based on how a selected benchmark index performs over time. So, typically there is some protection when the selected index goes down and gains (generally limited by a cap or subject to a participation rate) when the selected index increases. RILAs offer the ability to participate in the growth of an index — although growth is based on the performance of an index, you are not investing directly in an index. There are various options for which index your product tracks.
Both traditional variable annuities and RILAs, which are also variable annuities, are subject to investment risk, including possible loss of principal. Investment returns and principal value will fluctuate with market conditions so that units, upon distribution, may be worth more or less than the original cost.
Fixed annuities are a more conservative option with the main goal of keeping your money protected while providing fixed interest. If you want or need the potential to earn more interest on that money, then you may want to consider a fixed index annuity (FIA). These financial vehicles offer a similar level of protection as a fixed annuity but with more accumulation potential through one or more selected benchmark indexes, similar to RILAs. To be sure, FIAs don’t offer the same level of potential gains as a traditional variable annuity or RILA, but they do involve less risk through its principal protection.
Check the features
Once you have worked with a financial professional to figure out what style of annuity may fit your needs, you’ll want to look at all the products and carriers within the type you want. Within these broad categories, products vary widely. While there are some aspects to a product that can easily be compared — like rates and caps — many features or potential benefits available through additional riders (which may incur an additional cost) could make one product a better fit over another.
Some products offer buffers against index losses or an ability to lock in potential gains. Some may add optional death or living benefit riders that may also incur an additional cost.
Questions you’ll want to consider:
- What flexibility will the annuity offer to withdraw money?
- What levels of protection does it offer?
- How will this product help address risks to my retirement like inflation and market volatility?
- What is the financial strength of the annuity provider?
It’s important to take a holistic view of these products as you review them with the guidance of a financial professional and tax adviser, as applicable. They can help you sort through the products to find one that may be appropriate for your personal financial situation, because there is no one-size-fits-all “best” annuity. The appropriate annuity is the one that will help meet your needs and attain your retirement goals.
Any distributions are subject to ordinary income tax and, if taken prior to age 59½, a 10% federal additional tax.
Exercising an index lock may result in a credit higher or lower than if the index lock had not been exercised.
Guarantees are backed by the financial strength and claims-paying ability of the issuing company. Variable annuity guarantees do not apply to the performance of the variable subaccounts, which will fluctuate with market conditions.
Products are issued by Allianz Life Insurance Company of North America and distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com This content does not apply to the state of New York.
Related Content
- Annuity Payments Are 30% to 60% Higher: Time to Reconsider
- Annuities Provide Peace of Mind and Lifetime Income
- Too Heavy in Stocks? Annuities Could Be a Rebalancing Option
- Advisory Annuities Let You Eliminate the Middlemen
- Three Steps Help Ensure Your Money Lasts in Retirement
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 TaxesDon't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
