Skip to Content
Older couple dancing at party symbolizing that they are enjoying retirement.
Retirement Planning

Retiring without a pension? 3 reasons to consider annuities

Retirement is a time when people value certainty, and in years past, this certainty came from the guaranteed income of a pension. See how annuities can also help provide confidence and security in retirement.

As you think about retirement, having a guaranteed paycheck is probably at the top of the list. But fewer employers are offering pensions and Social Security may provide only a small part of what you will need. Your desire for security can feel less and less probable. So, what exists that can help you achieve the level of financial certainty you want?

Many individuals rely on the 4% rule when planning for retirement. Following this rule, individuals withdraw 4% during the first year of retirement, then adjust that amount based on inflation for subsequent years.

But there are many ways to determine the right portfolio withdrawal rate. Instead of relying solely on the 4% rule, you may want to consider other strategies. Where suitable, annuities can be a tool that meets a variety of needs as part of your retirement plan.

Challenges threatening guaranteed income

Only 14% of Generation Xers have a pension plan, according to the National Institute on Retirement Security.1 You'll potentially face several other challenges to your retirement income, including:

Longevity  The average American lifespan has increased steadily since the early 1940s.2 In 1943, the average American could expect to live to age 63. By 2018, that age had risen to 78. Income must last until then (and, for many Americans, much longer). As you age, your living expenses as well as Medicare spending will also likely increase.3

Sequence of returns  Market volatility can negatively affect your retirement nest egg. This is sometimes true for individuals relying on the 4% rule. The 4% rule also fails to account for fluctuations in spending needs. Often, these needs are higher earlier in retirement.

Social Security  Americans are increasingly relying on Social Security for a larger part of their income. And more Americans are retiring now than ever before.4 However, Social Security benefits will be a shrinking part of the guaranteed income equation.5 Full retirement age is 67 for those born after 1960. If you file for benefits before then, your payouts can be reduced by up to 30%.6

3 ways annuities can help

These common retirement challenges make it even more important to increase your level of guaranteed retirement income, especially if you retire earlier than expected. Annuities are a valuable but often overlooked guaranteed income option for retirees. They can complement your Social Security benefits and other forms of retirement income.

Annuities can also help subsidize the cost of increased living and health care expenses. This will help reduce overall risk to your retirement income. For example, a life-with-period-certain annuity provides a lifetime income regardless of your life span, helping remove the longevity risk.

Annuities are a type of investment that can pay a regular income. And they can be a strategic addition to retirement plans to generate guaranteed income. Here’s a few ways annuities can help:

Cost  Annuities can provide valuable benefits where other sources of income fall short. Like other types of insurance, annuities have a range of options. You can choose one that provides the best balance between cost and benefits for your needs.

Flexibility  Some annuities give you the freedom to buy riders that can provide access to income for life’s uncertainties. If you become unemployed or need long-term nursing home care, you may be able to access some funds. There is most likely an annuity that suits your retirement goals, level of financial certainty, and preparation for the future.

Growth potential — Annuities can support accumulation goals and can be designed to fit your risk preferences. They can provide market exposure as well as fixed interest rates and options to help protect assets from inflation and market volatility. If you have a higher risk tolerance, you could consider purchasing variable annuities with a guaranteed lifetime withdrawal benefit rider that provides a minimum annual withdrawal amount.

Find out if an annuity is right for your retirement plan

Annuities, like any type of insurance option, have their pros and cons. But it's valuable to consider the potential this type of insurance could bring to your retirement strategy. An annuity can help provide a level of guaranteed income that you need to achieve greater financial certainty in retirement. And they can help give you the freedom to pursue your broader retirement aspirations safe in the knowledge that your basic living costs are covered.

Protective offers multiple types of annuities based on your needs. Talk with your financial professional to find out if an annuity fits into your retirement goals.

Explore these additional topics as you consider annuities:

As you determine what annuity might be right for you, remember they are intended as vehicles for long-term retirement planning, which is why withdrawals reduce an annuity’s remaining death benefit, contract value, cash surrender value and future earnings. Withdrawals from annuities may also be subject to income tax and, if taken prior to age 59 ½, an additional 10% IRS tax penalty may apply. Because Protective and its representatives do not offer legal or tax advice, it is important that you talk with your own legal and tax advisor about your specific tax situation.


This material contains statements regarding the availability of and details surrounding the Social Security program. These statements represent only our current understanding of Social Security in general and is not to be considered legal or tax advice by consumers. Details of the Social Security program are subject to change at any time.

 

1 https://www.nirsonline.org/2023/07/new-report-finds-alarming-retirement-outlook-for-generation-x-3/  

2 https://www.cdc.gov/nchs/data-visualization/mortality-trends/index.htm

3 https://www.forbes.com/sites/saibala/2023/06/20/healthcare-costs-will-increase-significantly-over-the-next-decade/?sh=1afe78d6c6b5

4 https://www.protectedincome.org/peak65/

5 https://www.cbpp.org/research/social-security/social-security-benefits-are-modest

6 https://www.ssa.gov/benefits/retirement/planner/1960.html

 

WEB.5872382.07.24

 

 



Arrows linking indicating relationship

Related Articles

Illustrated woman holding open book

Retirement planning basics

Learn more
Older couple at a table with female financial advisor.

What is a fixed annuity?

Learn more
Mom looking at baby while writing on paper

Pay off debt or save for retirement?

Learn more
All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective or its subsidiaries.

Neither Protective nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective and its products and services, visit www.protective.com.

Companies and organizations linked from Learning Center articles have no affiliation with Protective or its subsidiaries.