Understanding Annuities During National Annuity Awareness Month

June marks National Annuity Awareness Month, a time dedicated to highlighting the role annuities can play in a stable retirement plan. As many individuals face economic concerns like market volatility and rising interest rates, understanding how annuities work can offer a reliable strategy for securing future income.

What Is an Annuity?

An annuity is a financial product where you pay an insurance company in exchange for regular income distributions later—either for a set period or for life. This structured approach helps provide a steady stream of income during retirement, aligning with long-term financial goals.

Why Consider an Annuity?

Annuities come with numerous benefits, making them an attractive consideration for retirement planning. They offer lifetime income, ensuring you don't outlive your savings, and have legacy planning features like death benefits. Beyond that, they provide tax-deferred growth with the potential for compounding gains, known as the “triple tax benefit”—where principal, interest, and tax savings all earn interest. Additionally, some annuities offer market protection, providing peace of mind against economic fluctuations.

What Are the Downsides of Annuities?

While annuities can be beneficial, it's important to be aware of their downsides. They often involve high fees, including sales charges, administrative fees, and investment management costs. There are also risks related to rising interest rates, inflation, and the potential failure of the insurer—although protections like state guaranty associations can mitigate these. Furthermore, there can be tax impacts and early withdrawal penalties, including ordinary income tax and surrender charges.

Are More People Choosing Annuities?

In recent years, more individuals are turning to annuities for financial stability. In fact, annuity sales reached a record $432.4 billion in 2024, showing a 12% increase from 2023. While 2025 projections are more moderate, annuities continue to play a valuable role in portfolio diversification, helping countless individuals navigate uncertain financial landscapes.

Despite their benefits, annuities aren’t a one-size-fits-all solution but can be a powerful tool in specific retirement strategies. It's advisable to consult with a financial professional to see how annuities might fit into your individual retirement plan. This month, take the opportunity to explore whether this financial product aligns with your long-term goals.