What is the main advantage of an annuity?

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Quick Answer

Only an annuity can pay an income that can be guaranteed to last as long as you live. With an annuity, the insurance company promises to pay you income on a regular basis for a period of time you choose—including the rest of your life.

Income you cannot outlive

All annuities have one feature in common, and it makes annuities different from other financial products. With an annuity, the insurance company promises to pay you income on a regular basis for a period of time you choose—including the rest of your life. Only an annuity can pay an income that can be guaranteed to last as long as you live.

Tax deferral

Income tax on annuities is deferred, which means you aren’t taxed on the interest your money earns while it stays in the annuity. Tax-deferred accumulation isn’t the same as tax-free accumulation. An advantage of tax deferral is that the tax bracket you’re in when you receive annuity income payments may be lower than the one you’re in during the accumulation period. You’ll also be earning interest on the amount you would have paid in taxes during the accumulation period.

Weigh the advantages against the trade-offs

You shouldn’t buy an annuity to reach short-term financial goals. Don’t buy an annuity you don’t understand or that doesn’t seem right for you. All product guarantees depend on the insurance company’s financial strength and claims-paying ability.

Video: What is the main advantage of an annuity?

About this video

In this short video, titled Annuity income you can NEVER outlive, Jeffrey Scott McLeod, LUTC goes straight to what makes an annuity stand out. Holding up the NAIC Buyer’s Guide, he reads the line that only an annuity can provide an income that can be guaranteed to last as long as you live. He calls it amazing and stresses that lifetime really does mean lifetime, even if you live to be 120 years old, because the guarantee runs for your entire lifetime. He closes by pointing viewers to the free Buyer’s Guide.

The newer Buyer’s Guide makes the same point another way: all annuities have one feature in common, and it makes them different from other financial products. The insurance company promises to pay you income on a regular basis for a period of time you choose, including the rest of your life. A second advantage the Guide names is tax deferral. You are not taxed on interest while it stays in the annuity, you keep earning interest on money that would otherwise go to taxes, and you may be in a lower tax bracket when income starts. These advantages come with trade-offs, including surrender charges and the fact that an annuity is not meant for short-term goals, so weigh both before you buy.

Receive your free NAIC Buyer’s Guide to Fixed Deferred Annuities at annuitiesexplained.org/get-your-free-consultation-with-me/. Watch short educational videos at youtube.com/@AnnuitiesExplained. Contact Jeffrey Scott McLeod, LUTC for personalized guidance tailored to your state.

Questions & Answers

Question	Answer
What makes an annuity different from other financial products?	All annuities have one feature in common, and it makes annuities different from other financial products. With an annuity, the insurance company promises to pay you income on a regular basis for a period of time you choose—including the rest of your life.
Can an annuity pay income for as long as I live?	Only an annuity can pay an income that can be guaranteed to last as long as you live.
Is tax deferral an advantage?	Income tax on annuities is deferred, which means you aren’t taxed on the interest your money earns while it stays in the annuity. An advantage of tax deferral is that the tax bracket you’re in when you receive annuity income payments may be lower than the one you’re in during the accumulation period.
Is tax-deferred the same as tax-free?	Tax-deferred accumulation isn’t the same as tax-free accumulation.
Should I buy an annuity for a short-term goal?	You shouldn’t buy an annuity to reach short-term financial goals.
Are the guarantees backed by anything?	All product guarantees depend on the insurance company’s financial strength and claims-paying ability.

Large Print Version

What is the main advantage of an annuity?

What makes an annuity different from other financial products?

Can an annuity pay income for as long as I live?

Only an annuity can pay an income that can be guaranteed to last as long as you live.

Is tax deferral an advantage?

Income tax on annuities is deferred, which means you aren’t taxed on the interest your money earns while it stays in the annuity. An advantage of tax deferral is that the tax bracket you’re in when you receive annuity income payments may be lower than the one you’re in during the accumulation period.

Is tax-deferred the same as tax-free?

Tax-deferred accumulation isn’t the same as tax-free accumulation.

Should I buy an annuity for a short-term goal?

You shouldn’t buy an annuity to reach short-term financial goals.

Are the guarantees backed by anything?

All product guarantees depend on the insurance company’s financial strength and claims-paying ability.

Annuities Explained is not affiliated with or endorsed by the National Association of Insurance Commissioners (NAIC).

Educational content provided by Jeffrey Scott McLeod, LUTC, National Insurance Producer License #558629. This is for informational purposes only and is not a recommendation to buy or sell any annuity. Guarantees are subject to the claims-paying ability of the issuing insurance company. Always consult your own advisor and read the full NAIC Buyer’s Guide. For residents of your state.

Jeffrey Scott McLeod, LUTC — Texas License #901162 (National Producer #558629).
Questions? Contact Jeff@AnnuitiesExplained.org.