Retirement Planning

What Is A Retirement Annuity?

If you're looking for a way to turn your savings into retirement income, an annuity may be something to consider. Learn about the types of annuities and how they work with this easy-to-use guide.

What is a Retirement Annuity?

Today, there are many factors that have the majority of Americans (59 percent) very worried about having enough money for retirement.1 Factors such as a slow-to-recover economy, disappearing pensions, possible Social Security cuts, and the very real possibility of outliving your money. The fact is, one of the most complicated financial feats most of us will ever tackle is making our money last through our retirement.

If you're worried that you won't have enough income for the lifestyle you want in retirement, you might want to discuss with a financial advisor or insurance professional about the potential benefits of using annuities as part of your overall retirement plan.

How do annuities work?

Annuities work by giving a lump sum of money to an insurance company, and in return, the insurer agrees to pay you a guaranteed income for a certain length of time (or even for the rest of your life). Simply put, annuities can help turn your savings into retirement income so that you don't run out of money.

There are different types of annuities that can help you meet your individual retirement and financial goals. Whether you are currently retired, retiring soon, or retiring years from now, annuities can provide a variety of accumulation  options. For example:

  • Fixed annuities can offer a variety of interest rate guaranteed periods and payout options
  • Fixed indexed annuities offer upside potential as well as downside protection
  • Variable annuities may offer optional protected lifetime income benefits
  • Immediate annuities can provide a lifetime of retirement income that can start upon issuance

Benefits of Annuities

The growth in your annuity is tax deferred, similar to the way earnings are handled with most retirement accounts, such as a traditional IRA or 401(k). That means your money can compound year after year, and you won't be taxed on your money until you take withdrawals. And because any growth in your annuity value is generally not taxed until you take money out of the contract, the combination of tax deferral and the ability to establish guaranteed income can be an effective way to plan for retirement andother long term goals.

As you determine if an annuity may be right for you, remember that 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 and payments from annuities also may be subject to income tax and, if taken prior to age 59 ½, an additional 10 percent IRS tax penalty may apply. Because Protective Life and its representatives do not offer legal, tax, or investment advice, it is important that you talk with your own legal, tax, or investment representative about your specific situation.


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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 Life or its subsidiaries.

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