By Brent Matthew
No one can predict exactly what will happen in retirement. When you create your retirement plan, you try to anticipate your needs and choose the investments most likely to help you meet them. However, there’s no way to guarantee the profitability of most investments. Dealing with all this uncertainty can be nerve-racking. When working with my clients, I usually suggest counterbalancing your portfolio’s risk with annuities.
Annuities are among the very few investment products that offer certainty. With the right one, you’ll have a guaranteed income for life. Annuities aren’t meant to replace your portfolio; they’re meant to work alongside it.
Here’s a look at how annuities can provide retirement income and supplement other investments.
How Do Annuities Work?
An annuity is a contract between you and an insurance company. You pay premiums (monthly, in a lump sum, or both) to the insurer, and the insurer pays back your money with interest at a later time.
Deferred annuities are commonly used in retirement planning. With a deferred annuity, you start making payments right away, but you don’t receive distributions for quite some time. Once you’re retired, you may start receiving distributions. Many people choose to receive a steady stream of income in monthly payments, but you may also schedule payments less frequently if you wish.
The amount of payment you receive depends on whether you have a fixed or variable annuity. Fixed annuities pay a pre-determined amount of money, so they are ideal for retirement planning. Variable annuities come with market risk, and they also aren’t guaranteed.
How Annuities Complement Investments
Your portfolio is likely made up of several types of investments, including these:
- Stocks
- Bonds
- Mutual funds
Diversifying your portfolio across many different sectors and investment types can help insulate you from market volatility. However, the investments above can’t guarantee a return.
This might not be a significant problem in your younger years. Because younger people have time to build a portfolio before retirement, they also have time to rebound from a market downturn. Many younger people are more willing to dedicate some of their portfolio to high-risk, high-reward investments.
However, as retirement nears, most people have the opposite focus. If you’re going to rely on income from your investments, you want to have at least some guaranteed income for life.
Because annuities provide that guaranteed income, they serve as a kind of “safety net” alongside your other investments. Stocks and other traditional investments have the potential to generate greater returns, but those returns aren’t guaranteed. When you have annuities, you have income to rely on even when your portfolio isn’t performing well.
How Annuities Work With Social Security
Annuities can work alongside your more traditional investments to provide you with a steady cash flow. However, that’s not the only way they can help secure your retirement. When you include the right annuities in your portfolio, they can fill in gaps in your income from pensions and Social Security.
Social Security benefits offer a certain amount of monthly income, but for most people, it’s not enough to live on. You may work or earn other income while receiving benefits, but if you exceed the Social Security Administration’s yearly earnings limit, your benefits could be reduced.
Naturally, you might wonder if income from an annuity could be counted against you. When calculating your earnings, the Social Security Administration only looks at wages and self-employment income. Annuities, pensions, veterans’ benefits, and other types of income are excluded.
Ready to Bolster Your Portfolio?
If you don’t already have annuities as part of your investment portfolio, you may be missing out on reliable retirement income. Scottsdale Wealth Advisory is dedicated to helping people like you build sounder financial futures. If you want to learn more, don’t hesitate to contact us.
To schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew.
Frequently Asked Questions About Annuities
Q: How do annuities work alongside other investments in my portfolio?
Annuities serve as a complementary investment strategy by providing guaranteed income, which balances the inherent risk of other investments like stocks, bonds, and mutual funds. While traditional investments offer potential for growth, they lack the certainty that annuities provide. By adding annuities to your portfolio, you create a “safety net” that ensures a steady cash flow, especially as retirement nears and you may be less inclined to take on high-risk investments.
Q: Can annuities replace my other retirement investments?
No, annuities are not meant to replace other investments like stocks or bonds. Instead, they work alongside these investments to complement them. While stocks and bonds carry risk and variable returns, annuities offer predictable income, making them an important part of a diversified retirement strategy. Think of annuities as a stable, guaranteed source of income that supplements the potential ups and downs of your portfolio.
Q: How do annuities impact my Social Security benefits?
Annuities can help fill income gaps left by Social Security, but they won’t affect the amount you receive. The Social Security Administration only considers wages and self-employment income when calculating your benefits, so annuity payments, along with pensions or veterans’ benefits, are excluded. This means you can receive income from both your annuities and Social Security without worrying about a reduction in your benefits.
About Brent
Brent Matthew is the founder and CEO of 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. 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.
Advisory services are offered by Scottsdale Wealth Advisory, LLC, an Investment Advisor in the State of Arizona. Insurance products and services are offered through Scottsdale Wealth Advisory, LLC. Scottsdale Wealth Advisory, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency, and is not engaged in the practice of law. Be sure to consult with a licensed financial professional to confirm the accuracy of the insurance product you are considering.
