5 Reasons to Consider an Annuity in your Retirement Portfolio

When people think the word “annuity”, they think of something that will lock their money up indefinitely and the only way that they will have access is through a series of periodic payments.  While this can be one way an annuity operates, many today have several different ways to provide income, focus on capital preservation, or growth of principal.

When people hear the word “annuity” they hear “annuitization”, referring to a lump sum of money being deposited and then recipient receives a payment for life.  This can come at a huge cost to people. 1) The money is locked up forever which can come at opportunity cost- the cost of missing future investment opportunities; 2) little or no rate of return credited

However, “annuity” is not a bad word. Yes, some are garbage just as there are many other investments that are garbage.  Just as there are good investments, there is also good annuities that can be a good fit for you.

Here are some facts about many annuities:

-They all have surrender periods.  Surrender periods are the charges you pay for withdrawing too early.  They can range from 2 years to 15 and beyond.  I would recommend having an annuity with a surrender of 10 years or less. Why is this?  Well, because within that time there will always be a new “latest and greatest product” that comes along that may be a better fit.

– Just because there is a surrender charge does not necessarily mean you do not have access.  Most all carriers allow for 10% penalty free during the surrender charge period.  A lot of index annuities have an income rider (generally between 4.5%-5.5% of accumulated value.  You receive this regardless of how annuity performs.  Even if value of the annuity is depleted because zero interest ever gets credited due to downturns in market, you receive this income payment for life!

-Many annuities have a long-term care and nursing home component whereby income is doubled if certain criteria are met.

-With index annuities, you participate in market returns with protection of principal. If market goes up, you win. If market goes down, you don’t lose- you just do not have any interest credited to your account that year.  Albeit, there are several nuances to this which I am happy to explain individually but for the purposes of this post and to spare my fingers from tiring, I will refrain for now.

-Deferred taxation! You do not pay taxes on interest credited until money “touches your hands”- much like a ROTH IRA

-No one should have all their money in annuity. Just like everything else, don’t keep all your eggs in one basket

Let’s talk Meat and Potatoes:

5 Reasons to Consider an Annuity


  • Annuities can provide a guaranteed, predictable income. These days, people are living longer.  A couple age 65 has a 50/50 chance of one of them making it to over 90.  And 25% chance one makes it to 97! Dang, I hope I don’t live that long!
  • Choose when to begin income. You do not have to take income right out of the gate.  You can put money in (or contribute over time) and let the money “bake” (my way of saying just accumulate interest).  Bottom line: You need income today? Take it.  You want it later? Take it then!
  • With most annuities, you know you can count on getting what you put in and likely more. This can be a hedge against your investments that can potentially make you a lot but on the flipside, cost you a lot!
  • Tax-Efficiency. Unlike many investments that require you pay tax each year (thereby actually lowering your overall rate of return on said investment), annuities are deferred taxation. You’re only taxed when you take the money out in the future, thereby your interest credited is your true rate of return
  • As stated previously, not all annuities are the same.Some focus on growth while others focus on guarantees in income.


As always if you ever have any questions, please feel free to contact me at NC residents: (828) 513-5045 x 1 SC residents: (864) 214-7285 x 1, Everybody else: (855) 664-5660 x 1



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