By Farm Bureau Financial Services on May 9, 2025
5 Things to Know Before Buying an Annuity
Should You Buy an Annuity? What to Know Before Investing
Buying an annuity — or more than one — is part of many people’s retirement portfolio. In brief, annuities (sometimes called deferred annuities) are tax-deferred insurance products that offer income payments in retirement. You invest a single lump sum or a series of small amounts with an insurance company. In exchange, you will earn interest on that money during the accumulation phase and will receive payments to either you or your beneficiary during the distribution phase.
With all of that in mind, here are five reasons that you may consider adding an annuity to your portfolio.
1. Does Buying an Annuity Make Sense for Your Retirement?
Annuities are growing in popularity in part because they can provide a consistent stream of income, which helps address many retirees’ fears of outliving their savings. Annuities pay out in a variety of ways. The most common way is over a specified length of time, typically between 5 and 20 years. If you’re also relying on Social Security, an annuity can serve as an additional stream of income.
2. Maximize Savings with Unlimited Contributions
You can invest money into multiple annuities set to pay out at different times or in different ways. If you plan well, this can help you maintain your standard of living and address unexpected expenses that pop up during retirement. However, some annuities have surrender fees if you decide to withdraw funds early.
3. Choosing When to Receive Payments
A deferred annuity can give you flexibility regarding withdrawal, helping you plan for when you’ll need the money. You can design a distribution plan that works right for you – giving you the funds you’re looking for.
4. Fixed Annuity Rates and Tax-Deferred Growth
In general, earnings from annuities purchased with after-tax dollars are tax-deferred until the earnings are withdrawn. Fixed annuity rates can offer steady growth, making them an appealing option for those seeking stability in their retirement financial planning.
5. Choosing the Right Option
Each of these annuity types provide a different type of flexibility so you can choose based on your financial situation and retirement portfolio.
- Indexed Annuities: can allow for upside market potential without fear of losing principal. Indexed fixed annuities can provide steady retirement income payments that can help with risks like inflation by responding to changes in the market.
-
Fixed Annuities: can offer a guaranteed rate of return when compared to other retirement savings options , such as stock market investments, providing protection against market volatility. With a fixed annuity, you can receive stable and regular payments.
Each option can play a different role in retirement income and long-term financial stability. Consulting with a financial advisor can help you determine which annuity fits your overall retirement plan.
Who Should Buy Annuities?
Annuities may be particularly helpful for people who are saving for retirement later in life, are close to retirement, have maxed out other retirement savings vehicles or have a lower tolerance for risk. If you’re wondering if an annuity is right for you, connect with your local Farm Bureau agent.
