Annuities 101
Annuities provide a safe and reliable way to grow your money while securing guaranteed income for the future.Whether you’re nearing retirement or simply looking for financial stability, annuities offer a powerful combination of benefits that make them an attractive option for many investors. With tax-deferred growth, your savings can compound more efficiently over time—without being reduced by annual income taxes. Unlike traditional investment accounts, annuities also protect your principal from market downturns, giving you peace of mind regardless of economic conditions.
What truly sets annuities apart is their ability to deliver predictable, lifetime income—helping to eliminate the risk of outliving your savings. You can choose from various options tailored to your goals, including immediate or deferred income, fixed or indexed interest, and flexible payout structures. At Diversified Insurance Brokers, we help you compare hundreds of annuity products from top-rated carriers to ensure you get the solution that fits your needs, goals, and timeline.
Whether you’re looking to supplement retirement income, safeguard a lump sum, or build a long-term financial plan with security and confidence, annuities can be a smart and strategic part of your overall financial picture.
How Well Have Your Investments Been Doing Lately?
Have you taken a moment to review your investments recently? It’s important to ensure your money is not just sitting idle—but actively working toward your long-term financial goals. Many traditional investments can expose you to significant market volatility or deliver disappointing returns, especially in uncertain economic times. That’s where annuities can offer a meaningful advantage. By combining growth potential with protection from market losses and guaranteed income options, annuities can help stabilize your portfolio and provide confidence in your retirement planning. Whether you’re looking to preserve principal, grow your savings tax-deferred, or create a predictable income stream for life, annuities can be a smart complement to your overall investment strategy.
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Think About What Annuities Can Do for You:
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Safety of Principal:
One of the most valuable features of annuities is the protection they offer for your initial investment. Unlike stocks or mutual funds, fixed and fixed indexed annuities are designed to safeguard your principal—no matter how the market performs. That means you never have to worry about losing your original contribution due to market volatility. This built-in security makes annuities an ideal choice for conservative investors or anyone looking to preserve wealth while still earning steady, tax-deferred growth.
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Guaranteed Gains Every Year
One of the standout benefits of fixed and fixed indexed annuities is the ability to lock in growth annually—regardless of how the market performs. Unlike traditional investments that can lose value in a downturn, annuities ensure that your gains are protected and cannot be lost due to market declines. Each year, your account value can increase based on a fixed rate or index performance (depending on the type of annuity), and those gains are locked in permanently. This means your money keeps moving forward, even when other investments take a step back—providing stability and confidence in your long-term financial plan.
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Higher Yield than a CD
Annuities often provide higher interest rates than traditional bank products like Certificates of Deposit (CDs), making them an attractive option for conservative investors seeking better growth without added risk. While CDs offer safety and predictability, their returns are typically low—especially in a fluctuating interest rate environment. Fixed annuities, on the other hand, offer competitive guaranteed rates, along with tax-deferred growth, which can significantly enhance long-term performance. With similar levels of principal protection and more earning potential, annuities give you the best of both worlds: security and stronger returns.
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Tax Advantages
One of the key benefits of annuities is tax-deferred growth. Unlike taxable investment accounts, annuities allow your interest and earnings to grow without being reduced by annual taxes. You don’t pay any taxes on the gains until you begin making withdrawals, which can help your money compound more efficiently over time. This tax-deferred treatment can be especially valuable for long-term savers looking to maximize growth and control when income becomes taxable—often during retirement, when you may be in a lower tax bracket. It’s a powerful way to enhance your overall financial strategy while keeping more of your money working for you.
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Liquidity
While annuities are designed for long-term growth and income, many contracts offer built-in flexibility when it comes to accessing your money. Most annuities allow penalty-free withdrawals of up to 10% of your account value each year after the first contract year. This means you can access a portion of your funds for unexpected expenses or planned needs—without sacrificing the growth of your remaining balance. Some annuities also include enhanced liquidity features for specific situations, such as terminal illness, nursing home care, or confinement waivers. This combination of long-term security and short-term access makes annuities a more versatile financial tool than many people realize.
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Lifetime Income
One of the most powerful benefits of annuities is the ability to turn your savings into a guaranteed income stream that lasts for life. This feature, often called a lifetime income rider or payout option, ensures you receive consistent payments for as long as you live—no matter how long that may be. It helps eliminate the risk of outliving your money, which is one of the biggest concerns retirees face. Whether you choose to start income immediately or defer it to a future date, annuities provide the peace of mind that comes with knowing your basic living expenses can be covered for life, regardless of market conditions or interest rate changes.
Use the calculator below to determine your guaranteed lifetime income
Fixed Income Annuity (FIA)
Fixed Indexed Annuities offer a unique blend of growth potential and principal protection. Your returns are linked to the performance of a market index—such as the S&P 500—giving you the opportunity to benefit from stock market gains without being exposed to market losses. In other words, when the market goes up, your annuity earns interest based on that growth. But when the market goes down, your principal is protected, and you won’t lose a dime due to market performance. Even better, any credited interest is locked in annually, meaning those gains become part of your protected account value moving forward. This combination of upside potential and downside protection makes FIAs a compelling choice for long-term savers who want steady growth without the stress of market volatility.
Annuities: A Sound Investment for Some of Your Money
Annuities offer a balanced, secure way to protect and grow a portion of your savings—making them a valuable component of a well-diversified portfolio. While they may not be the right fit for all your money, annuities provide stability, guaranteed growth, and predictable income that can complement more aggressive or volatile investments. For many individuals approaching or planning for retirement, annuities deliver peace of mind by offering financial certainty in an uncertain world.
At their core, annuities are contracts between you and an insurance company. In exchange for a lump sum or a series of payments, the insurer guarantees a fixed rate of interest—often higher than what you’d find with CDs, savings accounts, or money market funds. What sets annuities apart is their tax-deferred status. You won’t pay taxes on any interest or growth until you begin making withdrawals, allowing your money to compound more efficiently over time. This feature, along with principal protection and lifetime income options, makes annuities especially appealing to those preparing for retirement and looking to secure their future with reliable, low-risk strategies.
Tax Treatment of Annuity Withdrawals
When it’s time to begin taking withdrawals from your annuity, the tax treatment will depend on how the annuity was funded. If the annuity was purchased with after-tax dollars (known as a non-qualified annuity), only the earnings are taxable—your original principal is returned to you tax-free. However, if the annuity was funded through a qualified retirement plan such as a 401(k), IRA, or TSA, then the entire withdrawal amount is taxed as ordinary income, since those contributions were made pre-tax. Understanding how your annuity is classified can help you plan ahead and manage your income taxes more effectively in retirement.
Annuities continue to be a compelling option for individuals seeking a combination of safety, long-term growth, and powerful tax advantages. For those planning their retirement, they offer a dependable strategy for securing income while deferring taxes and avoiding market risk.
Frequently Asked Questions about Annuity
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A true bonus is an upfront percentage added directly to your account value—it’s real money that can be withdrawn under the contract terms. A benefit base bonus, on the other hand, is only used to calculate income benefits like guaranteed lifetime withdrawals. It does not increase your actual cash value or amount available for withdrawal.
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No-Obligation Consultation: Explore Your Fixed Annuity Options
While CDs offer safety and predictability, fixed annuities deliver more—higher growth potential, tax-deferred accumulation, and the option for guaranteed lifetime income. That makes them a smarter, more flexible choice for long-term financial planning and retirement security.
Whether you’re preparing for retirement or simply looking to protect and grow your savings, a fixed annuity can help you achieve your goals with confidence and peace of mind.
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Annuities 101: Two Quick Videos That Explain How Annuities Work and Why They Matter
If you’re new to annuities or just want a clearer understanding of how they fit into your retirement strategy, these two short videos are the perfect place to start. We’ll walk you through the basics—what annuities are, how they grow your money, and how they can provide guaranteed lifetime income. Whether you’re years from retirement or already planning your next step, these videos offer simple, no-pressure education to help you make informed decisions.