An annuity is a contract between you and an insurance company in which you contribute either a lump sum or a series of payments in exchange for guaranteed income — either for a fixed period of time or for the rest of your life, no matter how long you live.
This makes annuities one of the most powerful tools for protecting against the single greatest fear in retirement: outliving your money. Fixed annuities shield your principal from market volatility entirely, growing at a guaranteed interest rate regardless of economic conditions, while fixed indexed annuities allow your savings to participate in market gains while protecting 100% of your principal when markets decline.
During the accumulation phase, your money grows tax-deferred, meaning you keep more of your savings compounding rather than losing a portion to annual taxes each year. Once you convert to income, your monthly payments are contractually guaranteed and completely unaffected by stock market crashes, interest rate shifts, or inflation shocks.
Annuities also protect against elder financial fraud and exploitation — because income is paid directly to you by the insurer under an irrevocable contract, that stream cannot be manipulated or drained by outside parties.
For retirees who lack a traditional pension, an annuity effectively recreates that predictable paycheck-style income, covering essential expenses with certainty while other investments handle growth.
For more information, read our book: Annuity Myths, and The Income Floor Strategy.
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