Understanding Annuities During National Annuity Awareness Month

National Annuity Awareness Month: A Time for Reflection

June is National Annuity Awareness Month, offering a timely opportunity to explore how annuities can play a vital role in retirement planning. In today's world, where market volatility and rising interest rates create financial uncertainty, annuities provide a measure of stability.

What is an Annuity?

An annuity is a financial product you purchase from an insurance company. In return, you receive regular income payments, which can start immediately or at a future date. This is either for a predetermined period or for life, offering a reliable income stream in retirement.

Why Consider an Annuity?

Annuities come with several attractive benefits, including lifetime income and legacy planning features, such as death benefits. They also provide tax-deferred growth, allowing potential for compounding gains. Not to mention, specific annuity types offer market protection, making them a sound option when dealing with current economic challenges.

What Are the Downsides of Annuities?

Despite their benefits, annuities aren't without drawbacks. High fees—such as sales charges, administration fees, and investment management costs—can impact your returns. Other risks include inflation, rising interest rates, and even the possibility of insurer failure, although state guaranty associations offer some protection. Additionally, there are tax implications and penalties for early withdrawal, which are levied as ordinary income taxes plus surrender charges.

Are More People Choosing Annuities?

The popularity of annuities is reflected in record-breaking sales, which hit $432.4 billion in 2024, a 12% increase from 2023. Although forecasts for 2025 suggest a more moderate growth trajectory, annuities remain a key element in diversified portfolios.

While annuities are not suitable for everyone, they can be a powerful tool in certain retirement strategies. Consult with a financial professional to determine how annuities might align with your personal retirement plan.