June is National Annuity Awareness Month.
If there’s one financial product that sparks strong opinions, it’s the annuity.
To some, annuities are a smart way to create guaranteed income in retirement. To others, they’re expensive, complex contracts best avoided. The truth, as is often the case in personal finance, lies somewhere in the middle. And with June recognized as National Annuity Awareness Month, now is a great time to understand what annuities really are and explore whether this type of product might deserve a place in your retirement income plan.
What Is an Annuity?
At its core, an annuity is a contract between you and an insurance company. You invest a lump sum or make periodic payments, and in return, the insurer agrees to pay you a stream of income either for a specific period or for the rest of your life. The goal? To provide a predictable, steady income you can’t outlive.
There are many types of annuities—fixed, variable, indexed, immediate, and deferred, to name a few. Each has different features, costs, and risks. Some are designed for growth, others for income, and some try to do a bit of both.
Why Are Annuities So Controversial?
Annuities have gotten a bad rap over the years. Some of it earned, some of it exaggerated.
Critics often point to:
- High fees: Particularly in variable annuities, where layers of costs can eat into returns.
- Complexity: With many moving parts, riders, and fine print, annuities can be hard to understand.
- Sales practices: In the past, annuities were sometimes sold to people who didn’t need them or fully understand them.
These concerns are valid and highlight the importance of thoughtful, individualized advice, not product-first planning.
At Flagship Capital Advisors, we take a planning-first approach to everything we do. We believe that planning is paramount to any recommendation. Product suggestions, whether it’s an annuity, a mutual fund, or an insurance policy, only come after a comprehensive understanding of your goals, income needs, risk tolerance, and long-term vision. Only then can we determine whether a specific tool, like an annuity, may be appropriate.
Where Annuities Make Sense
Despite the controversy, annuities can serve a valuable purpose when used strategically especially as a supplement to other retirement income sources like Social Security, pensions, and investment portfolios.
Here’s how:
- Income You Can’t Outlive
A lifetime annuity can provide peace of mind by ensuring a portion of your retirement income will never run out, no matter how long you live. - Market Protection
Fixed and indexed annuities can protect principal from market losses, appealing to retirees who are risk-averse or looking for stability. - Bridging Income Gaps
For those retiring before Social Security or pension benefits begin, an annuity can act as a bridge providing consistent income during that waiting period. - Tax Deferral
Deferred annuities allow investments to grow tax-deferred, which can be advantageous for long-term planning.
The Bottom Line
Annuities are not inherently good or bad, they’re simply tools. And like any tool, their effectiveness depends on how and why they are used.
At Flagship Capital Advisors, we evaluate a wide range of financial vehicles when building a client’s financial roadmap. Sometimes annuities make sense. Sometimes they don’t. But any recommendation we make is rooted in a deep planning process. We do not lead with products, we lead with purposeful planning.
This June, during National Annuity Awareness Month, consider taking a fresh look at your retirement income plan. Whether you ultimately include an annuity or not, understanding how this investment instrument fits into a bigger picture can make all the difference.
And if you’re not sure where to start, that’s what we are here for.
