About Annuities

Written by Anne French, Shepherd Financial Partners

It is sometimes difficult to trust your savings in the stock market when you are planning for retirement in this volatile market environment. If you are looking for an asset that is tax deductible, helps your savings accumulate wealth, and provides a steady stream of income, it might be smart for you to consider purchasing an annuity. An annuity is a fixed income insurance product where you invest in it by paying a fixed rate, helps your funds grow and ultimately pays out in a lump sum or in a stream of payments upon a maturity date. These qualities are compelling for those strategizing their retirement, but it is important to be informed on all aspects of annuities to see if they are the right investment for your portfolio or retirement plan.

Types of Annuities

Immediate Annuity

You immediately begin to receive a steady stream of income after your first investment.
Best suited for: individuals who are in or nearing their retirement and needing a steady stream of income.

Deferred Annuity

The money you invest in the annuity accumulates money until the set date, where you can receive a lump sum or a steady stream of payments on a series of dates.
Best suited for: Young investors who are planning early for retirement

Fixed Annuity

The insurance company issuing the annuity agrees to pay to the annuity holder a fixed income over a series of dates for the remainder of their life. The issuer invests the money in fixed income assets to fund these distributions.
Best suited for: Retirees (or those close to it!) or risk averse investors.


Annuity VS Roth IRA?

Both are retirement vehicles that can accumulate wealth over time, so what are the differences?. While annuities are investments themselves, Roth IRA’s are accounts that are funded by investments such as stocks, bonds, and mutual funds. They also are under law of the US Government, and have many limitations on the use of them. Annuities do not have the contribution and ownership restrictions that Roth IRAs have.

Like all investments, it is important to understand the advantages and disadvantages of annuities to know if they will work well with your financial goals.


  • Steady Stream of income. Suitable for retirement as it provides you with money until the day you pass.
  • No annual contribution limit. you may invest as much or as little of your savings you would like (Unlike 401(k)s and IRAs).
  • Works to supplement retirement cash flow from Social Security and pension plans.[1]


  • Purchasing an annuity may be pricey, as they are often sold by insurance brokers who collect commission.
  • High fees. Understand the fees and penalties.
  • Distributions are taxable. There is a tax when the money is payed out.
  • Penalty for early withdrawals. If you access the money in the annuity before the annuity date, you will be charged a surrender charge, which range from 7-20%[2] Additionally, if you withdraw before age 591/2, a penalty tax may apply to taxable earnings.

Evaluate your financial and personal situation to determine if an annuity is fit for you.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Annuities are long-term investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company.

[1] http://money.cnn.com/retirement/guide/annuities_basics.moneymag/index4.htm?iid=EL

[2] http://money.cnn.com/retirement/guide/annuities_basics.moneymag/index4.htm?iid=EL