The term “retirement annuity” can be misleading. It isn’t a separate product type—it’s really just any annuity that’s structured to meet your retirement goals. In other words, it’s not about a label, but about how an annuity contract is used to provide security when you stop working.
Why Retirement Is About Security, Not Speculation
After years of market ups and downs—the dot-com bubble, the 2008 financial crisis, crypto swings, and everything in between—you may find yourself wanting more stability. Retirement is when most people start valuing predictability over chasing high returns. That’s where annuities come in. They aren’t designed for growth; they’re built to deliver guarantees.
Two Questions That Shape the Decision
When considering whether an annuity makes sense, start with these two questions:
- What do I need this money to guarantee?
- When do I want those guarantees to begin?
Your answers determine the right type of annuity. It’s not about a slick sales pitch—it’s about matching a contract to your financial needs.
The P.I.L.L. Framework
A simple way to think about annuities is through the P.I.L.L. model:
- P: Protecting principal
- I: Generating income for life
- L: Leaving a legacy
- L: Addressing long-term care or confinement needs
If none of these apply to you, then you probably don’t need an annuity. Many people find they don’t—and that’s perfectly fine.
Matching Annuities to Retirement Needs
Depending on your answers to those two key questions, here are the types of annuities that may be worth considering:
- If your goal is safety of principal right now:
Multi-Year Guarantee Annuities (MYGAs) work like fixed-term CDs, while Fixed Index Annuities offer CD-style contracts with growth potential linked to an index. - If you want income immediately:
A Single Premium Immediate Annuity (SPIA) can provide steady payments starting right away. - If you want income in the future:
Deferred Income Annuities (DIAs) and Qualified Longevity Annuity Contracts (QLACs) allow you to lock in payments that begin later. Another option is adding an income rider to a deferred annuity, which guarantees future income at a specified date.
Final Thoughts
A retirement annuity isn’t a special product—it’s a strategy. The right annuity depends on what you want guaranteed and when you want it. If those needs line up with the strengths of annuities, they can become a valuable piece of your retirement plan. If not, you may not need one at all. The key is clarity, not complexity.
