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Understanding Annuities: A Tool for Retirement Confidence

When planning for retirement, many investors look for strategies that can provide reliable income, protect against market volatility, and offer peace of mind. One financial tool that can help meet those goals is an annuity.

At Strategic Financial Concepts, we believe education is key to confident financial decision-making. Here’s what you need to know about annuities—how they work, when they make sense, and how they can fit into your retirement strategy.

What Is an Annuity?

An annuity is a contract between you and an insurance company designed to provide a stream of income, either for a specific period or for life. In exchange for a lump sum or a series of payments, the insurer promises to make periodic payments to you in the future.

Annuities can be used for:

Guaranteed retirement income
Tax-deferred growth
Legacy planning
Protecting against outliving your savings

Types of Annuities

There are several types of annuities, each with its own features and benefits:

1. Fixed Annuities

Provide a guaranteed interest rate for a specific period.
Offer predictable income and are often used for conservative investors.
Payments are not impacted by market performance.

2. Variable Annuities

Allow you to invest in sub-accounts (similar to mutual funds).
Payments can fluctuate based on investment performance.
Often include optional income and death benefit riders (for an added cost).

3. Indexed Annuities

Earnings are tied to the performance of a market index (like the S&P 500).
Offer the potential for higher returns than fixed annuities, with downside protection.
Include caps or participation rates that limit gains.

4. Immediate vs. Deferred Annuities

Immediate Annuities start paying income soon after you make a lump-sum payment—ideal for those entering retirement.
Deferred Annuities allow your investment to grow tax-deferred before turning into an income stream later in life.

Key Benefits of Annuities

Guaranteed Income for Life: One of the most appealing features—especially in retirement—is the option to receive lifetime payments.
Tax Deferral: Earnings grow tax-deferred until you begin withdrawing funds.
Customizable Options: Riders can be added for inflation protection, spousal continuation, or long-term care benefits.
No Contribution Limits: Unlike IRAs or 401(k)s, there are typically no IRS-imposed limits on how much you can contribute to an annuity.

Things to Consider

Annuities aren’t for everyone, and it’s important to consider:

Fees and charges: Some annuities come with high costs, including mortality & expense fees, surrender charges, and rider fees.
Liquidity: Withdrawing early can trigger penalties and surrender charges.
Complexity: Some products can be difficult to understand without guidance.

That’s why it’s important to work with a knowledgeable advisor who can help you evaluate if an annuity aligns with your personal financial goals.

Are Annuities Right for You?

Annuities can be a powerful part of a retirement strategy—especially if you’re seeking:

A predictable income stream in retirement
Protection against market downturns
Long-term income for yourself or a spouse
A complement to Social Security or pension income

However, your broader financial picture should always drive the decision.

Let’s Build Your Retirement with Confidence

At Strategic Financial Concepts, we help clients understand how annuities can support their overall financial plan. Our goal is to simplify complex financial tools and offer strategies that align with your goals, lifestyle, and legacy.

Interested in learning more about annuities?

Let’s schedule a conversation to explore the right options for your retirement plan.

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Investing doesn’t have to be overwhelming. Our team is here to help you understand your options, navigate market changes, and stay focused on your long-term vision. With thoughtful planning and guidance, investing can become a powerful tool to help secure your financial future.

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