By Brent Matthew
Some people facing retirement are turning to annuities as a source of income and a financial safety net. Many others may be uncertain about what an annuity actually is and whether it’s suitable for them.
I’ve spent lots of time working with annuities. Are annuities a good investment for retirement?
Here’s a quick primer on how they work and whether they can help you.
What Are Annuities?
An annuity is a contract issued by an insurance company to an “annuitant,” meaning the contract holder. In exchange for a premium payment, the insurance company pays the contract holder income at either fixed or variable installments.
The contract essentially provides guaranteed income when you decide, either right away or at some point in the future. It’s sort of like a cash payout from a life insurance policy, except it goes directly to you (and you don’t have to have passed away to trigger payouts).
Types of Annuities
Annuities come in a few different configurations, including the following:
Single Premium Immediate Annuities (SPIA)
The SPIA is a single, one-time lump-sum payment that begins distributing regular, guaranteed payments almost immediately, typically within 30 days. The SPIA is a good account for those looking for immediate income.
Fixed Annuities (MYGA)
Fixed annuities, or Multi-Year Guaranteed Annuities, provide a guaranteed, fixed rate of interest on your principal for a specified period, offering predictable income or growth either taxable or tax-deferred. The MYGA is a good account for those looking for a simple, safe, guaranteed fixed rate and term, but one of which you have total control over your taxable income, unlike that of a bank CD.
Fixed Index Annuities (FIA/Hybrid/NextGen)
These annuities combine the safety of a Fixed Annuity with the potential for higher returns based on the performance of a market index, like the S&P 500. The FIA is a good account for those who want either a safe stock market alternative, to generate guaranteed lifetime monthly income, or want to leave a legacy.
Variable Annuities
Variable annuities are tied to stock market performance. The annuitant has a portfolio of sub-accounts, aka mutual funds, that your principal is directly invested in. Though variable annuities offer growth potential, your principal is susceptible to risk. These annuities generally include the following fees: Mortality & Expense, Sub-Account, Administration, and Income/Death Benefit Rider.
The Three Phases of Annuities
Here’s a closer look at the three stages of an annuity’s time frame.
Accumulation
The annuity grows tax-deferred over a set time. There are several contribution options, including one-time payments, periodic payments, flexible premiums, or a combination. Annuity earnings can include tax-deferred compound growth on principal and interest.
Income
In the payout phase, the retiree begins taking income. They may take payouts in monthly installments or in an annual single lump sum. They may also choose to take income as an individual or as part of a joint life plan.
Legacy
This stage addresses the remainder of your annuity after you pass away. Some annuities offer beneficiary payouts, but others exclude them; it’s important to know the difference.
Why People Choose Annuities
Annuities offer a few advantages to account holders:
- Guaranteed income, potentially for life
- Tax-deferred growth
- Market safeguards for fixed and indexed annuities
- Options for spousal continuation
- No risk of outliving your wealth
These benefits make annuities a strong option.
Downsides of Annuities
Some risks of annuities include:
- Service fees, surrender charges, and early withdrawal penalties
- Over-complexity, “the fine print,” and complicated riders
- Risk of a low-quality annuity product
That last drawback can be avoided with Scottsdale Wealth Advisory’s 5-Star Rating guidelines.
Are Annuities Right for You?
Are annuities a good investment for retirement? Ask yourself:
- When do I need to start earning income?
- What kind of legacy do I want to leave, if any?
- How much risk can I tolerate?
- Can I afford to lock up my funds for a given time?
Answering these questions, especially with the help of Scottsdale Wealth Advisory’s annuity reviews and ratings, can point you to a prudent decision on annuities.
How Scottsdale Wealth Advisory Can Help
The 5-Star Mission of Scottsdale Wealth Advisory was developed to help clients find annuities that suit their needs, lifestyle, and risk tolerance levels. It uses the following eight measurable metrics with data points to rate annuities from five stars down to one:
- Insurance company rating
- Return rate
- Premium bonus
- Income-based guaranteed growth percentage
- Income-based growth duration
- Liquidity
- Guaranteed income payout percentage
- Fees and unknown charges
We also provide a unique, personalized annuity report and initial consultation for no charge. Contact us to set them up.
If you’re ready to schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew. We look forward to speaking with you!
About Brent
Brent Matthew is the founder, CEO, and portfolio manager at Scottsdale Wealth Advisory, a full-service fiduciary retirement planning firm serving pre-retirees and retirees across Arizona and multiple states. With a strong commitment to always putting clients first, Brent leads the firm in developing comprehensive, tax-efficient financial plans tailored to each family’s unique goals. As portfolio manager, he is responsible for researching investment, annuity, and life insurance strategies and building smart asset allocations that reflect both long-term growth and risk management.
Brent is driven by a core belief: “The success of this firm will be measured by the success of the families it represents.” That client-first approach has guided his work since the beginning. He is currently enrolled at the College for Financial Planning and is on track to earn his CERTIFIED FINANCIAL PLANNER® designation. He also holds his Series 65 license and Arizona Life and Health Insurance Producers License.
Outside the office, Brent embraces the Arizona outdoors with “lil B” and their two pomskies, Heimo and Kota. Whether he’s hiking, fishing, dirt biking, skiing, golfing, kayaking, or skeet shooting, Brent finds balance and joy in staying active. He’s also a fan of CrossFit, brunching, and cruising the Phoenix canal system on his beach cruiser—usually with classic tunes from the Marshall Tucker Band, Gordon Lightfoot, or Crosby, Stills & Nash playing in the background. To learn more about Brent, connect with him on LinkedIn.
