Stocks, bonds, and annuities each serve a role in a diversified financial plan—but they couldn’t be more different when it comes to risk, guarantees, and income. The chart below visually breaks down how each investment type behaves. While stocks drive growth and bonds provide moderate stability, annuities stand out for one reason above all: they’re the only vehicle that can turn savings into guaranteed lifetime income.

At Diversified Insurance Brokers, we compare hundreds of options from over 75 carriers to help clients find the right balance of growth, safety, and income. For retirees or those nearing retirement, understanding these differences can determine whether your nest egg lasts for life—or disappears too soon.

1. Stocks – Growth With Market Risk

When you buy stocks, you’re purchasing ownership in a company. If that company grows, your shares typically increase in value and may pay dividends. Historically, stocks have delivered higher long-term returns than other asset classes—but those returns come with volatility and no guarantees. A bear market can cut your portfolio by 20%, 30%, or even more just when you need it most.

For retirees depending on their portfolio for income, this creates what’s known as sequence-of-returns risk—the danger that poor market timing early in retirement can permanently reduce how long your money lasts. Even if markets recover, once shares are sold to fund income, they can’t rebound. This makes stocks powerful for accumulation, but unreliable as a primary income source.

Example: Stock Market Risk in Retirement

Imagine a retiree with $500,000 invested entirely in equities. If markets drop 25% in the first two years, the portfolio shrinks to $375,000—yet they still need income. Withdrawing $25,000 per year compounds the loss and leaves less principal to recover when markets bounce back. A portion of that portfolio converted into an annuity could have provided guaranteed income through the downturn, protecting both income and peace of mind.

2. Bonds – Stability With Rate and Inflation Risk

Bonds occupy the middle ground. They pay predictable interest and typically fluctuate less than stocks. But in today’s environment, bonds carry their own form of risk. When interest rates rise, bond values fall—sometimes dramatically for long-term bonds. Inflation can also erode real returns, leaving investors earning less than the cost of living increases they face.

While bonds can stabilize a portfolio, they rarely offer protection from rising prices or longevity risk. Interest income stops when the bond matures, and the investor must reinvest at whatever rates are available at the time. Many retirees who once relied on bonds for steady income are now turning to fixed and fixed indexed annuities as a modern, higher-yield alternative.

Example: When Bond Yields Fall Short

Suppose you purchase $200,000 in 10-year Treasury bonds at a 4.2% yield. That earns $8,400 per year, but the income stops at maturity—and there’s no inflation protection. By comparison, a similar deposit into a fixed annuity could lock in a higher rate, continue tax-deferred growth, and offer optional lifetime income benefits.

3. Annuities – Secure Growth and Guaranteed Income

Annuities are contracts with an insurance company that convert savings into guaranteed income or tax-deferred growth. Unlike stocks or bonds, annuities provide principal protection (when held through the insurer) and can guarantee payments for life. They come in several types, each designed for a specific purpose:

• Fixed Annuities (MYGAs): Provide a guaranteed rate for a set period—similar to a CD but typically with higher rates and tax-deferred growth.
• Fixed Indexed Annuities (FIAs): Offer upside linked to a market index (like the S&P 500) but never lose value due to market downturns. Perfect for conservative investors who want growth potential with no downside.
• Income Annuities: Convert a lump sum into guaranteed lifetime payments—essentially a “personal pension” that replaces or supplements Social Security.

At the time of publication, many of our clients are seeing 5.5%–6.5% guaranteed rates on fixed annuities and strong participation rates on indexed options. Visit our pages for current fixed annuity rates or explore today’s bonus annuity products that add extra premium credit at purchase.

Example: Annuity for Lifetime Income

A 65-year-old investing $300,000 into an income annuity could receive approximately $21,000–$24,000 per year for life, depending on design. The payments continue even if they live to 100, and many contracts include spousal or death-benefit protection. That level of predictability simply doesn’t exist with market-based investments.

Comparing the Three Side by Side

Why Retirees Prefer Annuities Today

With market volatility and inflation top of mind, more retirees are using annuities to replace a portion of their bond or stock exposure. Modern annuities combine guaranteed growth, tax deferral, liquidity options, and lifetime income features—a mix once available only through employer pensions. By allocating 20–40% of assets to annuities, many clients build a personal pension that covers core expenses while keeping other investments positioned for growth.

This approach transforms uncertainty into control. You know your baseline income for life, your principal is protected, and you still maintain flexibility for future goals. The result is a retirement plan that feels less stressful and more sustainable—especially when markets turn volatile.

Related Pages

• Annuities Overview
• Current Fixed Annuity Rates
• Current Bonus Annuity Rates
• Non-Qualified Annuity Tax Deferral
• Personal Pension Alternatives
• Annuity Free Withdrawal Rules
• Non-Qualified Long-Term Care Annuity
• What Is the 4% Rule?