June marks National Annuity Awareness Month, a fitting time to delve into the value annuities can add to your retirement planning. At a time when market volatility and rising interest rates are common concerns, understanding how annuities might help secure a stable financial future is vital.

What Is an Annuity?

An annuity is a financial product where you pay an insurance company in exchange for regular income later, either for a set period or for life. This structure can help ensure a stable income during retirement, independent of market fluctuations.

Why Consider an Annuity?

Annuities offer several benefits that make them attractive for retirement planning. They can provide lifetime income and come with legacy planning features like death benefits. Furthermore, annuities allow for tax-deferred growth, meaning your investment’s principal, interest, and tax savings compile without being immediately taxed—often called the "triple tax benefit." Certain types of annuities offer market protection, which can be crucial during economic downturns.

Are More People Choosing Annuities?

Annuity sales hit a record $432.4 billion in 2024, representing a 12% increase from the previous year. Though 2025 projections are more moderate, annuities continue to play a crucial role in portfolio diversification, revealing a growing trust in their ability to offer financial security.

What Are the Downsides of Annuities?

While annuities have numerous benefits, they also come with downsides, such as high fees, including sales charges, administrative fees, and investment management costs. Rising interest rates, inflation, and the potential for insurer failure present risks, though state guaranty associations often provide some protection. Additionally, tax liabilities and early withdrawal penalties are factors to consider, as payouts are generally taxed as ordinary income and may incur surrender charges.

Annuities aren't a one-size-fits-all solution but can serve as a powerful tool for those seeking to augment their retirement strategy with a reliable income source. It's wise to consult with a financial professional to determine if annuities fit your individual retirement planning needs.