Where Annuities Fit in Your Retirement Plan

Let's say you've been diligently saving for retirement—contributing to your 401(k), maybe building up a Roth IRA, and trimming expenses where you can. You're doing the right things. But as retirement approaches, the questions grow louder: Will it be enough? What happens if I live longer than expected? What if the market tanks right when I start drawing income?

That's where annuities can help—not as a magic fix but as a way to address some of the more common (and often overlooked) challenges in a retirement plan.

The Longevity Challenge

One of the biggest unknowns in retirement is how long it will last. Living longer than average is a good problem, but it comes with the challenge of making your money last just as long. Many people underestimate their life expectancy, resulting in inadequate retirement funding in later years.

An annuity can offer a stream of income that you can't outlive, helping to ease the anxiety that you'll run out of money in your 80s or 90s. While the specifics depend on the type of annuity, the idea is to add some predictability to a future that's inherently uncertain.

The Market Volatility Challenge

Most retirement accounts are invested in the market, which is great for growth over time. But what happens if the market takes a dive right when you're starting to draw income? It's called sequence of returns risk—when poor market performance early in retirement can deplete your savings faster than expected.

Some types of annuities can offer protection from market downturns. For example, fixed or fixed-indexed annuities may provide growth potential while protecting your principal from market losses. They won't perform like high-risk investments, but they're not meant to—they're designed to provide a more stable, predictable piece of your income puzzle.

The Guaranteed Income Challenge

Social Security provides a base level of income for most retirees, but it often doesn't cover everything—especially if you have no pension. That leaves a challenge between your fixed income and your actual expenses.

An annuity can be structured to deliver consistent monthly payments, similar to a paycheck, helping to cover everyday expenses such as groceries, utilities, or healthcare. Think of it as a way to create your own pension. And while all guarantees are subject to the claims-paying ability of the insurer, many people find value in knowing that at least part of their income is dependable, no matter what the market does.

Is an Annuity Right for You?

That really depends on your goals, your timeline, and your comfort level with risk. Annuities come in many shapes and sizes, and they're not one-size-fits-all. However, if your retirement plan faces challenges—such as uncertain income, market exposure, or the risk of outliving your savings—it's worth discussing how an annuity could help.

A trusted financial advisor can walk you through the pros and cons, explain how different annuity options work, and help you determine whether one might complement the rest of your strategy. Because retirement isn't just about having a significant number in your account—it's about knowing you'll be able to live the life you've planned without guesswork.

Many people have learned about the power of the Safe Money approach to reducing volatility. Our Safe Money Guide, now in its 20th edition, is available for free.  

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