Retirement Income: A Look at Annuities

Our chief market strategist breaks down the day's top business stories and offers insight on how they might impact your trading and investing.
3 min read
Photo by

What a time to be alive! Advances in health care, medicine, and technology are adding years to the average life expectancy of many Americans. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95, according to the Social Security Administration.

As life expectancies lengthen, the challenge of planning a well-funded retirement that includes income also increases. Annuities are one retirement planning vehicle that can offer an income stream to help cover living costs in your golden years. Here, we’ll dive in to one specific type, the deferred-income annuity.

An annuity is a contract between an insurance company and an individual or couple, and generally falls into two main categories: growth or income. Growth annuities are issued with a fixed or variable rate of return. Income annuities may include a growth component, but their main goal is to create a guaranteed stream of income that cannot be outlived.

Waiting Has Rewards

There is another type of annuity — the deferred income annuity — that combines the characteristics of both the growth and income vehicles into one product. An individual who purchases a deferred income annuity will receive a steady stream of income starting at some point in the future that will continue for the rest of his or her life.

The rising cost of health-care and medical expenses in retirement are an unknown. Annuities can be used in conjunction with current individual retirement accounts (IRAs) to help provide for financial needs in retirement, including health-care expenses. Some annuities offer the option to defer a portion of one’s IRA accounts as far out as age 85.

As with every investment, it pays to do your homework and to understand all the terms. With an annuity, as with all insurance products, individuals are essentially paying for protection. Fees and costs can have a potentially negative draw on overall portfolio performance. Also, it’s important to ask the annuity provider about surrender periods, when investors have to lock up money for a certain period of time — for example, once they have started to receive income.

Tax Benefits

Higher-tax-bracket investors who are looking for growth and have already maxed out their IRA and workplace plan contributions can potentially benefit from additional tax deferral with annuities.

There are other advantages to adding an annuity to a broader retirement plan. For example, annuities tend to be more flexible: They don’t have income limits, contribution limits, and some do not require that you start taking distributions at a certain age.

Higher-tax bracket investors who are looking for growth and have already maxed out their IRA and workplace plan contributions can potentially benefit from additional tax deferral with annuities. See your tax professional for more assistance.

The prospect of living long can be a little scary, especially when we start to think about living comfortably. Consider annuities as one approach that can help you make sure you don’t outlive your income.

Get more information on other retirement income solutions.

Call Us

Do Not Sell or Share My Personal Information

Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

Annuities are long-term investments designed for retirement purposes. Withdrawals of taxable amounts are subject to income tax and, if taken prior to age 59½, a 10% federal tax penalty may apply. Early withdrawals may be subject to withdrawal charges. Optional riders are available at an additional cost. All guarantees are based on the claims paying ability of the insurer. An annuity is a tax-deferred investment. Holding an annuity in an IRA or other qualified account offers no additional tax benefit. Therefore, an annuity should be used to fund an IRA or qualified plan for annuity features other than tax deferral. Product features and availability vary by state. Restrictions and limitations may apply.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC, a subsidiary of The Charles Schwab Corporation. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2023 Charles Schwab & Co. Inc. All rights reserved.

Scroll to Top