June is National Annuity Awareness Month

June marks National Annuity Awareness Month, a pivotal opportunity for those contemplating retirement planning to delve into how annuities can provide financial stability. As concerns about market volatility and rising interest rates grow, annuities stand out as a reliable option amidst economic unpredictability.

What Is an Annuity?

An annuity is a financial product designed to provide a steady income stream in retirement. You pay an insurance company, either as a lump sum or through premiums, in exchange for regular payments later. These payments can be scheduled for a set period or extend throughout your lifetime, offering peace of mind in post-retirement years.

Why Consider an Annuity?

Annuities offer multiple benefits that make them worthy of consideration. They ensure lifetime income and include legacy planning features such as death benefits. Additionally, annuities support tax-deferred growth, meaning the contributions can grow without immediate tax liabilities, leveraging the “triple tax benefit” for potential compounding gains. Certain annuity types also offer market protection, acting as a safeguard in turbulent economic times.

What Are the Downsides of Annuities?

While annuities offer significant benefits, it's important to acknowledge their downsides. They often come with high fees, including sales charges, administrative fees, and investment management fees. Further, risks such as rising interest rates, inflation, and the rare possibility of insurer failure should be considered, though state guaranty associations may offer some protection. Early withdrawals can incur ordinary income taxes and surrender charges, making them expensive.

Are More People Choosing Annuities?

Annuity sales reached a record high of $432.4 billion in 2024, marking a 12% increase from 2023. Although projections for 2025 are more moderate, annuities remain a valuable component for diversifying retirement portfolios, underscoring their growing appeal amid financial uncertainties. While annuities aren't designed to fit every retirement strategy, they are a potent tool for specific financial goals. It’s advisable to discuss annuities with a financial professional to determine how they might align with your retirement objectives and broader financial planning.