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What Is The Value of Using an Annuity?

Setting up — and monitoring — your retirement portfolio is key to ensuring that you have enough money to retire when it comes time. You’ll want to have a mixture of investments that are designed to protect your portfolio from swings in the market while also seeking to maximize your returns.

This setup is a tough balance to walk with such a variety of investment options available. However, one component that I recommend for all retirement portfolios is annuities.

What Is an Annuity?

An annuity is an agreement that you make with an insurance company. When you purchase an annuity, you either make a lump-sum payment or monthly payments to the insurance company. On a date determined by the terms of the annuity, you’ll begin receiving regular disbursements from the insurance company.

There are three basic types of annuities, including fixed, variable, and indexed. A fixed annuity provides you with a guaranteed payout.

A variable annuity has no predetermined payout and is instead tied to the performance of specified mutual funds. This type of annuity provides you with the potential for a higher return, but it comes with additional risk.

Indexed annuities provide a guaranteed minimum payout, but a portion of the return is tied to a market index — normally the S&P 500. This type comes with increased risk and the potential for a higher return depending on how the market index performs.

What Are the Benefits of Annuities?

There are several advantages to purchasing annuities. These include:

Growth with Stability

An annuity can add not only stability but also growth. Ty Young, CEO of Ty J. Young Wealth Management noted on the benefits of annuities in a retirement strategy: “Growth with Stability.  An annuity can add not only stability but also growth. An annuity can uniquely position your portfolio with an element of safety and growth at the same time.”

The right annuity can uniquely position your portfolio with an element of safety and growth at the same time. This type of investment can help protect the value of your portfolio while also giving you the potential for increased returns, especially if you purchase a variable or indexed annuity.


Annuities do not come with mandatory withdrawal restrictions. You can begin to take distributions from an annuity anytime you want to. There are also no contribution limits placed on annuities, so you can contribute as much as you like to them each year.

Tax-Free Retirement Growth

Money that is used to fund an annuity is tax-deferred. You won’t owe taxes on your annuity contributions until you begin receiving payments. It’s also possible to purchase an annuity through a Roth IRA to receive tax-free income during your retirement.

Death Benefits

If you pass on before realizing the entire value of your annuity income stream, it can be transferred to your designated beneficiary. Thus, they’ll receive its benefits until the income stream is fully exhausted. It won’t simply end with your death.

Customizable Options

While there is some risk associated with purchasing variable or indexed annuities, most insurance companies provide riders that may be bought to reduce the risk.

These riders allow for guaranteed minimum income if the market plunges. Riders available will differ by the insurance company. If you are concerned about the risk associated with variable or indexed annuities, riders may provide you with some peace of mind.

Should I Rollover My Investment Account from a Previous Job?

Frequently, investors wonder whether an investment account such as 401(k) or IRA should be rolled over into their current employer’s account or if it should be left alone.

Ty J. Young, when asked whether previous 401Ks should be rolled over agreed: “For most people the answer is yes.  By rolling over those 401k’s and IRA’s into one self-directed IRA, that allows investors to build a winning portfolio.” He added: “And to have a winning portfolio you must have three main elements:  (1) You are set up for income, either now or in the future;  (2) Growth;  and, (3) Protection against market lossesIt’s much simpler to have all three if you have all of your previous employer accounts in one self-directed IRA.”

It’s much simpler to have all three if you have all of your previous employer accounts in one self-directed IRA.

A self-directed IRA can hold a variety of investments outside of traditional stocks and bonds, known as alternative investments. You’ll be able to manage the contents of your self-directed IRA on your own, allowing for greater investment freedom.

Self-directed IRAs may be set up as either traditional or Roth IRAs. A traditional IRA allows you to make initial investments tax-free, but you’ll pay taxes on your distributions in retirement. On the other hand, contributions to your Roth IRA account are made with after-tax money, but they may be withdrawn during retirement on a tax-free basis.

Are Annuities Right for Me?

Annuities can be a fantastic addition to your retirement portfolio. They can serve as a buffer to other investments that are subject to market swings, such as stocks, bonds, and other investments. If you decide to purchase a variable or indexed annuity, you may find that your annuity can appreciate over time.

For those who have 401(k)s or IRAs from previous jobs, it’s important to transfer their balances into another medium rather than allowing them to sit. A recommended option is the self-directed IRA, which allows you to fully manage the contents of your portfolio on your own.

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