As the economy has faced major downturns in recent years, many Americans have grown concerned about their retirement savings. Soon-to-be retirees have seen nest eggs shrink and some have postponed retirement because they cannot yet afford to stop working.
Despite the market turmoil, consumers remain confident about at least one retirement vehicle: annuities. Nearly eight in 10 annuity owners say annuities make them feel more secure during financial uncertainty, according to industry research.
Safe and sound. Almost eight in 10 annuity owners believe annuities are secure and an important source of retirement stability even in volatile markets.
There are a couple of reasons investors view annuities as relatively safe. Annuities are sold by insurance companies, which traditionally offer conservative savings products with lower risk profiles. State insurance regulators review annuity products before they are offered to the public, and many owners value the contract guarantees these products provide.
For more context on annuities in changing markets, see The Importance of Annuities in Unstable Financial Markets.
Reliable retirement income. In the survey, 86% of annuity owners said annuities are an effective way to save for retirement and 89% said their annuity was a safe purchase. More than three in four reported they intend to use annuities for retirement income because many annuity contracts offer a guaranteed minimum interest rate.
Because annuities can serve several purposes, some investors research different product types before buying. Learn about other product options at Income Annuities and compare features with Variable Annuities if you want exposure to market performance.
Other benefits
- Income tax deferral until withdrawal
- Penalty-free withdrawals to cover emergencies (contract terms vary)
- Protection from creditors in many states
- Control over your money if circumstances change
- Probate-free transfers at death
- The option to convert a balance to guaranteed lifetime income
Plenty of other uses. Annuities are popular with people saving for retirement, but owners also use them as a financial cushion if they or a spouse live longer than expected. Many say they save into an annuity to avoid becoming a financial burden on their children.
Annuities are generally conservative rather than get-rich-quick products. Because they offer stability and predictable features, they remain an attractive option for retirement saving for many investors.
If you want to learn more about annuities, talk to an agent.
Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59½, may be subject to a 10% federal income tax penalty. Guarantees and payment of lifetime income are contingent on the claims-paying ability of the issuing insurance company.
Frequently Asked Questions
How do annuities provide retirement security?
Many annuities offer contract guarantees, including guaranteed minimum interest or lifetime income options, which help provide predictable retirement cash flow.
Are annuity earnings taxed?
Earnings in many annuities grow tax-deferred until withdrawn, at which point distributions are typically taxed as ordinary income.
Can I access money in an annuity for emergencies?
Some annuities allow penalty-free withdrawals for emergencies, but terms vary by contract so check the contract details before buying.
Do annuities protect assets from creditors?
Many states offer creditor protection for annuities, but protections differ by state and circumstance.