Retirement Planning

Annuities as Part of Your Retirement Plan

How do annuities fit into retirement planning? The advantages of annuities are reviewed in this article along with a high-level overview of the types of annuities available.

Boosting Your Retirement Planning Confidence With Annuities

If annuities are part of your retirement plan, then you're in good company. In fact, in a recent study, 47 percent of retirees and pre-retirees who own annuities said that ownership helped them feel more confident in planning for retirement and living their desired retirement lifestyle1. When properly understood and used, annuities can provide the ideal balance of growth and security - two words that are music to the ears of everyone trying to grow and hold onto their nest eggs.

How annuities work

An annuity is a contract between you and an insurance company. You make an investment in the annuity, and in return it makes payments to you on a future date or series of dates. The income you receive from an annuity can be paid out monthly, quarterly, annually, or in a lump-sum payment.

Retirement planning using annuities

Annuities are gaining in popularity as a retirement planning tool primarily because they allow you to turn a lump sum of money into a guaranteed steady income stream for a set number of years, or even the rest of your life. Common uses for annuities in retirement planning may include , among other things, accumulating assets, supplementing Social Security or a pension, and receiving guaranteed income for life.

Retirement advantages of annuities

The greatest advantage of using annuities for retirement planning is that you can put away larger amounts of cash and defer paying taxes. Just like your 401(k) or IRA, as long as you leave your earnings alone, the growth on annuities is tax-free until funds are withdrawn. However, unlike other tax-deferred retirement accounts, there are no annual contribution limits. Not only does this allow you to save more, it is ideal for individuals who are near retirement and need to catch up.

The money you invest may compound year after year without a tax bill, and could afford you the security of retaining every dollar originally invested - a huge benefit compared with many other taxable investments. When you need to access cash, you can choose to take a single lump-sum payment or set up guaranteed payments for a specific length of time, providing a steady stream of income.

Types of annuities used for retirement include:

  • Fixed Annuity

    A fixed annuity gives you the promise of fixed payments over time. Much like a certificate of deposit from a bank, when you take out a single-premium deferred annuity you agree to deposit a lump sum of money for a fixed amount of time, and the insurance company agrees to pay you a fixed amount of interest that's tax-free.

  • Variable Annuity

    A variable annuity (VA) puts your money in investments that you can control. Most often, those investments are in a variety of mutual funds providing you with fund options that include both growth stocks and income bonds. As an additional benefit, VAs offer a death benefit that guarantees your beneficiary won't receive less than your original investment - no matter how the funds perform.

  • Indexed Annuity

    The indexed annuity is a type of fixed annuity that calculates performance based on upward and downward movements in common indexes such as the S&P 500 Index. You are provided the opportunity to enjoy the benefits of positive upturns in the market with an element of principal protection. However, you would not be directly invested in the stock market.

  • The combination of tax deferral and the ability to establish guaranteed income can make annuities an effective part of a retirement plan by offering peace of mind against market downturns, and help retirees from possibly outliving their income.

1. LIMRA Secure Retirement Institute Study, 2014

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries. Variable annuities are long-term investments intended for retirement planning and involve market risk and the possible loss of principal. Investments in variable annuities are subject to fees and charges from the insurance company and the investment managers.

Protective and Protective Life refer to Protective Life Insurance Company (PLICO) and its affiliates, including Protective Life & Annuity Insurance Company (PLAICO). Variable annuities are issued by PLICO in all states except New York and in New York by PLAICO; securities offered by Investment Distributors, Inc. (IDI) the principal underwriter for registered products issued by PLICO and PLAICO, its affiliates. All companies are located in Birmingham, AL. Each company is solely responsible for the financial obligations accruing under the products it issues. Product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Policy form numbers, product availability and product features may vary by state.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit

Investors should carefully consider the investment objectives, risks, charges and expenses of a variable annuity, any optional protected lifetime income benefit and the underlying investment options before investing. This and other information is contained in the prospectus for a variable annuity and its underlying investment options. Investors should read the prospectus carefully before investing. Prospectuses may be obtained by calling PLICO or PLAICO at 888.340.3428.


Annuities can provide the ideal balance of growth and security for people seeking ways to supplement their retirement income. Annuities can be a useful tool for establishing an additional stream of income while also providing tax deferral benefits. This article explains the difference between Fixed, Variable and Indexed Annuities and what to consider when planning for retirement. For more information, visit our learning center.