June Brings National Annuity Awareness Month

June is National Annuity Awareness Month, a perfect moment to reflect on retirement planning, especially amid current economic concerns like market volatility and rising interest rates. Annuities offer a sense of stability in an unpredictable financial environment.

What Is an Annuity?

An annuity is a financial product where you pay an insurance company in exchange for regular income later—either for a set period or for life. This predictable income can serve as a cornerstone of your retirement strategy.

Why Consider an Annuity?

Annuities can offer several benefits, including lifetime income and legacy planning features, like death benefits. They also provide tax-deferred growth with the potential for compounding gains, commonly known as the "triple tax benefit": principal, interest, and tax savings all earning interest. Additionally, certain annuities offer market protection.

What Are the Downsides of Annuities?

It's important to approach annuities with a balanced perspective. Potential downsides include high fees such as sales charges, administrative fees, and investment management fees. Other risks involve rising interest rates, inflation, and the possibility of insurer failure, though protections like state guaranty associations exist. Additionally, tax impact and early withdrawal penalties in the form of ordinary income tax and surrender charges must be considered.

Are More People Choosing Annuities?

Annuity sales hit a record $432.4 billion in 2024, marking a 12% rise from 2023. While 2025 projections are more moderate, annuities continue to play a valuable role in portfolio diversification.

While annuities are not a one-size-fits-all solution, they can be a powerful tool for certain retirement strategies. It’s advisable to consult with a financial professional to discuss how annuities might fit into your retirement plan. Leveraging their benefits could lead to a more secure and predictable financial future.

 

National Annuity Awareness Month - June

Standard Insurance Company. (n.d.). Share the benefits of tax deferral. The Standard. https://www.standard.com/brokers-advisors/annuities/annuity-buzz/share-benefits-tax-deferral

 

O'Shea, A. (2024, January 26). Pros and cons of annuities. SmartAsset. https://smartasset.com/retirement/pros-and-cons-of-annuities

 

Reilly, J. (2024, February 8). Annuity sales surged to a $432.4B high in 2024. InvestmentNews. https://www.investmentnews.com/retirement-planning/annuity-sales-surged-to-a-4324b-high-in-2024/259093