Should I buy an annuity for my retirement plan?

Planning for retirement comes with a lot of decisions—how to invest, when to retire, and how to make your money last. One of the most commonly overlooked tools in retirement planning is the annuity. But what exactly is it, and should you consider buying one?

In this article, we’ll break down the power of annuities for your retirement plan, the different types, their benefits, and whether or not an annuity makes sense for your financial future.

What Is an Annuity?

An annuity is a financial product offered by insurance companies that provides a stream of income, often for life, in exchange for an upfront investment. Think of it as a contract: you give an insurer money now, and they pay you back over time.

Types of Annuities to Know

There isn’t just one kind of annuity. Here are the most common types:

• Fixed Annuity: Offers guaranteed payouts and a fixed interest rate.
• Variable Annuity: Payments vary based on the performance of underlying investments.
• Indexed Annuity: Returns are tied to a specific market index like the S&P 500, with protections from losses.
• Immediate Annuity: Starts paying income almost right away.
• Deferred Annuity: Accumulates value over time before payments begin later.

Not sure which one is best for your situation? That’s exactly where working with Guerra Wealth Advisors can help.

Why People Choose Annuities for Retirement

Many retirees worry about outliving their savings or facing market volatility. An annuity can act as a financial safety net in retirement. Here’s how:

Key Benefits:

• Guaranteed Income: Annuities can provide predictable monthly payments—some even for life.
• Tax Deferral: Earnings grow tax-deferred until withdrawal.
• Principal Protection: Some annuities protect against market losses.
• No Contribution Limits: Unlike IRAs or 401(k)s, you can invest more in an annuity.

Pro tip: Pairing an annuity with other retirement accounts can give you a mix of growth potential and stability. Our advisors can help you strike that balance.

Common Concerns About Annuities

Annuities aren’t for everyone. Let’s look at some potential drawbacks:

• Fees: Some annuities—especially variable ones—come with high fees.
• Complex Terms: Riders, surrender charges, and payout options can be confusing.
• Liquidity Issues: Once you buy, it’s often hard to access your money without penalties.

That’s why personalized advice matters. At Guerra Wealth Advisors, we help clients understand the fine print and choose annuities only when they make strategic sense.

Should You Buy an Annuity for Your Retirement Plan?

This depends on your income needs, other assets, and how comfortable you are with risk. An annuity might be a good fit if:

• You’re worried about outliving your retirement savings.
• You want to create a pension-like income.
• You prefer stability over risk.
• You’ve maxed out contributions to other retirement accounts.

But if you need flexibility, plan to leave money to heirs, or are still focused on high-growth investments, other strategies might serve you better.

Still unsure? Our advisors can run a personalized retirement income projection to help you decide if an annuity is right for you.

How Much Should You Put Into an Annuity?

You don’t have to go all in. Many people dedicate only a portion of their portfolio to annuities. A good rule of thumb is:

• 30–40% of your retirement income needs could be covered by guaranteed sources (Social Security + annuities).
• The rest can come from IRAs, 401(k)s, and brokerage accounts for growth and flexibility.

When’s the Best Time to Buy an Annuity?

Annuities work best when you’re getting close to retirement or already retired. However, if you’re looking for tax-deferred growth, you might consider a deferred annuity even earlier.

Ideal Timing:

• Ages 55–70
• When you want to convert part of your savings into guaranteed income
• If you’re retiring without a pension

Final Thoughts: Are Annuities Worth It?

An annuity can be a powerful tool when used in the right context. It’s not about replacing your entire portfolio—it’s about adding security to your overall plan. The real value lies in peace of mind and guaranteed income you can’t outlive.