Thinking About Annuities for Retirement Income? Here Are Some Things You Need to Know.Do you feel confident you will have enough money to carry you through your retirement years?

If you don’t, you are far from alone.

Some people are adding annuities to their portfolio to help augment their savings.

However, not everyone is familiar with this type of retirement vehicle. 

According to Investopedia, an annuity as a financial product sold by financial institutions, designed to accept and grow funds from an individual and structured to supply a stream of payments to that individual at a later point in time.

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That is because a life insurance policy pays after the death of the insured party.

On the other hand, an annuity provides money to the contracted party or their beneficiary (annuitant) while they are still living. Installments continue until the contract period ends or the annuitant passes away.

Who buys annuities?

To find out, financial and insurance industry research firm LIMRA conducted a study.

Among the results of the study: 35 percent of retirees generate retirement income from annuities; participants had incomes of at least $35,000 and were ages 55 to 79.

In addition, they had been retired a year or more and were not working.

Gaining in popularity

Quite a few retirees rely on Social Security and/or company pensions to pay their living expenses.

But that can be a risky strategy, because there is the ever-present possibility of changes to Social Security and the fact that very few employers these days offer pension plans to their workers.

As a result, LIMRA expects a growing number of people will save for retirement via 401 (k) accounts and annuities – both of which place the burden of saving on the individual.

Types of annuities

As Forbes explains, some annuities create immediate income. Others accumulate it for the future (deferred).

How much you will receive each month is based on whether the annuity is fixed or variable.

A fixed annuity is a financial contract allowing the funds to accumulate on a tax-deferred basis. These annuity types feature a guaranteed interest rate and minimum payment by the annuitant.

On the other hand, a variable annuity allows capital to accumulate on a tax-deferred basis.

These instruments can generate higher return rates than fixed annuities, because they invest in equities and bonds.

Annuity pros and cons

Still thinking about adding an annuity to your retirement strategy?

The Motley Fool notes there are pluses and minuses.

Among the benefits are:

  • They can generate income for extended periods, so you don’t run out of money in retirement
  • Select types will keep up with inflation, so you don’t lose buying power over time

Some drawbacks include:

  • They are not protected or insured by the companies that issue them
  • Many charge yearly fees

AmeriLife can help

Because annuities can be confusing, it is important you understand how the different types work. Learn more 

An experienced and licensed AmeriLife insurance agent can help you explore annuity options to see if they could generate the income you need, when you need it.

Connect with an agent in your area.

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