One of the biggest fears facing retirees today isn’t the stock market. It’s not inflation. It’s not even healthcare costs—though those are definitely important. No, the #1 concern many retirees quietly carry around is this:
“What if I outlive my money?”
That’s a heavy question. But there’s good news—you don’t have to live with that fear. One financial tool is specifically designed to ease that worry and create peace of mind: annuities.
In this article, we’re going to unpack annuities in simple, everyday language. We’ll explain how they work, explore the different types, and show why they can serve as your own personal pension—giving you guaranteed income for life.
What Is an Annuity, Anyway?
At its core, an annuity is a contract between you and an insurance company. You give them a lump sum of money (or make payments over time), and in return, they promise to pay you a stream of income—often for the rest of your life.
It’s like setting up your own pension plan.
While investment accounts go up and down with the market, annuities are designed for one key purpose: to turn your savings into predictable, lifelong income.
Annuities can be a great solution for retirees who don’t have a traditional pension and want more than just Social Security to rely on each month.
Real-Life Example: Meet Tom and Grace
Tom and Grace, both in their late 60s, had worked hard, saved diligently, and were ready to enjoy retirement. But they had one lingering worry: what if their nest egg didn’t last as long as they did?
Rather than rolling the dice, they took a portion of their retirement savings—about $250,000—and bought an annuity that guaranteed them $1,200 a month for the rest of their lives.
Now, every month, like clockwork, they receive their annuity income. It covers their basic expenses so they can enjoy retirement without constantly checking the market or fretting over how long their savings will last.
That peace of mind? Priceless.
Types of Annuities: Which One Is Right for You?
Annuities come in different flavors, and each serves a slightly different purpose. Let’s break them down.
🟢 Fixed Annuities
Think of these as the “CD of annuities.”
They pay you a guaranteed interest rate for a set period (like 3, 5, or 10 years).
At the end of the term, you can renew, cash out, or convert to income payments.
Safe, predictable, and great for conservative retirees.
🟢 Immediate Annuities
You give the insurance company a lump sum and start receiving income right away—usually within 30 days.
Payments can be for life, a set number of years, or joint life (you and your spouse).
Ideal if you’re already retired and want to start income immediately.
🟢 Deferred Annuities
You buy the annuity now, but income starts later—in 5, 10, or even 20 years.
Great for people in their 50s or early 60s who want to lock in future income.
The money grows tax-deferred until you start withdrawals.
🟢 Indexed Annuities
Your money is tied to the performance of a stock index (like the S&P 500), but with protection from losses.
You won’t earn all the market’s gains, but you also won’t lose money if the market goes down.
Income guarantees can be added for lifetime income later.
A nice balance between safety and growth.
🟢 Variable Annuities
These are the most complex and riskiest type.
Your money is invested in mutual fund-like subaccounts, and your income depends on market performance.
May include optional income riders that guarantee minimum payouts.
Best for retirees who are comfortable with investment risk.
Why Annuities Make Sense for Retirees
So why would you consider putting some of your retirement savings into an annuity? Here’s why annuities are becoming more popular among retirees:
✅ Guaranteed Lifetime Income:
No matter how long you live, you’ll keep receiving income. That’s powerful.
✅ Freedom from Market Worry:
Unlike stocks or mutual funds, annuities can offer fixed income you can count on—rain or shine.
✅ Simplified Planning:
With a set amount of income coming in each month, budgeting in retirement gets a whole lot easier.
✅ Protection for Spouses:
Many annuities offer joint options so both you and your spouse receive income as long as either one of you is alive.
✅ Tax-Deferred Growth:
Deferred annuities grow without being taxed until you take the money out—giving your money more time to grow.
✅ Peace of Mind:
Perhaps most importantly, annuities provide confidence that you won’t run out of money in retirement.
But Are There Downsides?
As with any financial product, annuities aren’t perfect. Here are a few things to be aware of:
❗ Surrender charges may apply if you withdraw early.
❗ Fees on variable and indexed annuities can be higher than other investments.
❗ Less liquidity: Once you’ve turned on income, it’s harder to access your principal.
❗ Complexity: Some annuities can be confusing. Always ask questions and work with someone you trust. That said, when used correctly and in moderation, annuities can provide a foundation of income that gives you freedom and security in retirement.
How Much Should You Put Into an Annuity?
A common rule of thumb is to cover your essential expenses with guaranteed sources of income (like Social Security, pensions, or annuities). The rest can stay in investments or cash for flexibility.
For example, if your essential expenses are $4,000/month and Social Security provides $2,500, you might use an annuity to fill that $1,500 gap.
It’s not about putting all your eggs in one basket—it’s about making sure your basic lifestyle is protected, no matter what.
3 Highly Rated Annuity Providers
There are dozens of annuity providers out there, but here are three that consistently receive strong financial ratings and reviews from industry analysts and consumers:
🔷 MassMutual
One of the oldest and most respected names in insurance.
Known for strong financial ratings and clear, consumer-friendly annuity products.
🔷 Nationwide
Offers a broad range of annuities, including fixed, variable, and indexed options.
Excellent customer service and high-rated retirement planning tools.
🔷 Pacific Life
Especially well-regarded for its income-focused annuities.
Offers competitive rates and innovative income rider options.
These companies all have A+ or higher financial strength ratings, which is important because your annuity is only as good as the company backing it.
Frequently Asked Questions
Q: Can I lose money in an annuity?
A: Not in a fixed or immediate annuity. Indexed annuities protect you from market losses, while variable annuities carry investment risk.
Q: Are annuity payments taxed?
A: Yes. The portion that represents interest or growth is taxed as ordinary income. The principal portion is not taxed.
Q: Can I buy an annuity with IRA money?
A: Absolutely. You can roll over IRA or 401(k) funds into an annuity to create guaranteed income during retirement.
Closing Thoughts: Your Retirement, Your Way
Retirement should be a time of peace, not panic.
If you’re looking for a way to simplify your finances, eliminate the fear of running out of money, and turn your hard-earned savings into a reliable income stream—an annuity might be the perfect fit.
Whether you’re just starting to explore your options or ready to create your own personal pension, remember this: you’re in control. The right annuity, chosen carefully and used strategically, can be a powerful tool to help you live comfortably and confidently for years to come.
P.S. This article is an excerpt from my book “Lifetime Income: The Senior’s Guide to Annuities”—written in plain English, just like this post, and packed with practical information for retirees who want income they can count on. You can find it on Amazon.com, available in both Kindle and paperback formats. If you found this helpful, you’ll love the full book!