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6 Annuity Benefits to Consider

Retirement Planning
Smiling older woman looking down at research on annuity benefits

Key Takeaways

  • Guaranteed Income: Annuities provide secure income, ensuring financial stability throughout retirement and acting as insurance against outliving savings.
  • Tax Benefits: Annuity contributions grow tax-deferred, potentially leading to greater growth due to compounding and reduced taxes in retirement.
  • Unlimited Contributions and Customization: Unlike IRAs and 401(k)s, there are no IRS contribution limits on annuities, making them an option for higher retirement savings and can be customized to match individual needs, risk tolerance, and investment preferences.
  • Long-Term Care Insurance Riders: Some annuities offer riders that provide additional payments for long-term care, offering a cost-effective alternative to traditional long-term care insurance.
  • Guaranteed Rate of Return: Fixed annuities offer a predictable rate of return, shielding against interest rate fluctuations and investment underperformance.

When considering an annuity, it's good to compare options and understand how they can help you reach your financial goals. After all, knowing how different tools work can help to make your choices more manageable.

While there are several other investment vehicles to evaluate when planning for retirement, annuity benefits shouldn't be overlooked. An annuity is a contract with an insurance company that provides tax-deferred interest and the potential for a guaranteed stream of income. Purchasing one can help you feel a sense of financial security in retirement.

But there are also several other benefits to consider. Here are six notable annuity benefits.

1. Guaranteed Income

One benefit to annuities is the fact that they can provide guaranteed income for a set number of years, or even for the rest of your life. This is true even if you live long enough to exhaust the amount of money you spent to purchase the annuity, known as your annuity premium. In fact, in these circumstances, you can think of an annuity as insurance against potentially outliving your savings.

For workers who don't receive a pension, an annuity can help fill that gap. Workers can invest money into a retirement account (like an IRA) and then, upon retirement, take those savings and purchase an annuity to supplement Social Security. An annuity can then turn those savings into a predictable stream of guaranteed income.

2. Tax Benefits

Another big benefit offered by annuities? The money you contribute grows tax-deferred. This means you don't pay taxes on the interest until you begin receiving the funds, typically after you begin retirement. All qualified annuity withdrawals are subject to ordinary income tax, and withdrawals taken before the age of 59½ will incur an additional 10% tax penalty

The tax-deferred status can allow your money to have more growth potential or allow your money to potentially grow more over time because earned interest can compound without any funds needing to go toward tax payments. Additionally, when it does come time to tap your annuity, you may be able to pay less in taxes if you fall into a lower tax bracket, due to your income potentially being lower in retirement.

3. Unlimited Contributions

Unlike other retirement options, there are no IRS limits on the amount of money you can contribute to an annuity.

The IRS places caps on the amount you can invest in an IRA or 401(k) each year. For instance, the 2024 limit for an IRA is $7,000 a year or $8,000 if you're 50 or over. Meanwhile, the 2024 limit for a 401(k) is $23,000 or $30,500 if you're 50 or older.1

But the IRS does not place a ceiling on the amount you can contribute to an annuity. So, after you've maxed out your 401(k) and IRA contribution amounts, if you still want to save more for retirement, an annuity may be a good option to consider.

4. Ability to Customize

Annuities come in all shapes and sizes. The ability to choose one that works best for your needs is another benefit.

For example, there are immediate annuities and deferred annuities. What this means is you can either purchase an annuity that provides payment within a year of your premium or an annuity that starts paying you in the future, typically upon retirement.

There are also annuities that grow at a fixed rate, or variable annuities that grow according to the performance of investments you have in a subaccount. Additionally, there are annuities in which the growth is tied to the performance of an index, such as the S&P 500.

Annuities are also issued with an assortment of riders that offer additional benefits; some with an additional charge. Examples include riders that increase your payments over time by a set percentage, or that guarantee a certain payout amount, even if you die before you collect it. Some riders increase annuity payments if you develop certain qualified medical conditions or become confined in an institution. In addition to providing income while you are alive, some payment options also provide a death benefit for your beneficiaries. Keep in mind that rider benefits, terms and conditions will vary from rider to rider.

5. Long-Term Care Insurance Riders

Long-term care insurance can be expensive or hard to get for those with preexisting conditions or health concerns. However, this is an area where annuity benefits could offer owners a benefit.

With an annuity, you may have an option to purchase a rider that allows you to receive higher payments for a set time period if you require long-term care. This can help to offset the cost of the care you receive and is typically less expensive than long-term care insurance, so it may be an option worth consideration.

6. Guaranteed Rate of Return

Fixed annuities provide a guaranteed rate of return over the time specified in the annuity contract, which means you don't have to worry about your income stream being reduced if interest rates decrease or investments underperform during that time. Keep in mind, though, that payment amounts are typically fixed, which can cause inflation risk.

Also, remember that an annuity guarantee is not a guarantee of investment performance. It's only a guaranteed amount of income you'll receive when the annuity enters the payout phase, based on the claims-paying ability of the insurer.

With any financial decision, it's good to know and weigh the costs and benefits. If you want to know what are the benefits of an annuity, remember it's a viable option to save tax-deferred money for retirement in a way that suits your needs. Just keep in mind that an annuity may not be the best option for your individual situation. If you'd like a personalized look at how an annuity can help to provide funds during your retirement, consider reaching out to a financial professional for more insight.


  1. 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000. https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000.

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