5 Ways Annuities Can Strengthen a Retirement Plan

Retirement planning often revolves around investments, pensions, and Social Security. Annuities, however, remain an underused tool. They are insurance contracts designed to convert savings into guaranteed income, providing stability in an uncertain world. For retirees who want to balance risk, income, and longevity, annuities can play a meaningful role.

1. Creating Guaranteed Lifetime Income

The most recognized feature of an annuity is the ability to provide income for life. This “personal pension” ensures that retirees do not outlive their money. For individuals without a traditional pension, annuities can create a reliable paycheck, reducing dependence on market performance for day-to-day living expenses.

2. Acting as a Hedge Against Market Volatility

Market downturns can be particularly damaging to retirees who are drawing from their portfolios. Annuities can act as a buffer by guaranteeing a baseline income regardless of economic conditions. By covering essential expenses with annuity income, retirees can leave more volatile investments untouched during downturns, giving them time to recover.

3. Offering Tax-Deferred Growth Beyond Retirement Accounts

Unlike IRAs and 401(k)s, nonqualified annuities do not have annual contribution limits. High earners who have already maximized tax-advantaged accounts can continue to defer taxes on investment gains within an annuity. Withdrawals are taxed as ordinary income, but the benefit of deferral can compound meaningfully over decades.

4. Providing Spousal and Survivor Protection

Many annuity structures allow benefits to continue for a spouse after the original owner’s death. This ensures continuity of income and greater financial security for households relying on two incomes. Joint-and-survivor contracts in particular can help couples plan with confidence, knowing both partners are covered.

5. Supporting Estate and Legacy Planning

While annuities are not always thought of as estate planning tools, certain strategies make them useful for transferring wealth. Designating beneficiaries can avoid probate, and riders may provide enhanced death benefits. Some annuities also allow “stretch” provisions that extend income payments to heirs, spreading tax liabilities over time.

Where Annuities Fit Best

Annuities are not a universal solution. They can involve fees, liquidity restrictions, and complexity that require careful evaluation. But for those seeking longevity protection, steady income, or tax deferral after maxing out other accounts, annuities can meaningfully strengthen a retirement plan.