Retirement Planning: Annuities

An annuity is a financial product designed to provide a steady stream of income during retirement. It is a contract between an individual and an insurance company, where the individual pays a lump sum or a series of payments, and in return, the insurance company agrees to pay a regular income for a specified period or for the rest of the individual's life.

Here are some steps to take if you're looking to add annuities to your retirement planning portfolio:

Goals, Risks, and Timeline

Financial planning for annuities is critical because it involves a long-term commitment and requires careful consideration of several factors, including the individual's age, financial goals, and risk tolerance.


Before purchasing an annuity, it is essential to understand your financial goals. For example, do you want a guaranteed income stream during retirement, or are you looking for investment growth opportunities? Knowing your financial goals can help you determine which type of annuity is suitable for you.


Annuities come in various types, including fixed, variable, and indexed. Fixed annuities provide a guaranteed fixed interest rate, while variable annuities offer the potential for higher returns but with more risk. Indexed annuities offer a balance of protection and growth potential. It is crucial to understand your risk tolerance and choose the right annuity that aligns with your investment objectives.


Annuities can be either lifetime or fixed-term. Lifetime annuities provide a steady stream of income for the rest of your life, while fixed-term annuities provide an income stream for a specified period, typically five to ten years. Deciding on the length of the annuity will depend on your financial goals, risk tolerance, and overall financial situation.

Shopping Around, Tax Implications, and Adjustments

Working with a trust financial planner can ensure that your annuities are designed to minimize your tax burdens and allow for needed adjustments.

Shopping Around

It is essential to compare different annuity products and providers to find the one that suits your needs. Research the terms and conditions of different annuities, such as fees, surrender charges, and tax implications, to make an informed decision.

Tax Implications

Annuities have different tax implications depending on the type of annuity and how it is funded. For example, if you fund your annuity with pre-tax dollars, you will pay taxes on the income when you receive it. On the other hand, if you fund your annuity with after-tax dollars, the income will be tax-free. It is essential to understand the tax implications of your annuity to make an informed decision.


An annuity is a long-term investment, and it is essential to review it periodically to ensure it is meeting your financial goals. If your financial situation or goals change, you may need to adjust your annuity accordingly.