Written By : Elaine Silvestrini
Edited By : Kim Borwick
This page features 17 Cited Research Articles

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There are many reasons to buy annuities, depending on your lifestyle needs. Among other benefits, they can provide you with guaranteed income for life, a way to provide for your loved ones, protection against losing your initial investment and help with long-term care costs.

Some people think annuities are complicated, partly because they come in so many varieties. But they’re more like ice cream in that sense because they come in many flavors, allowing you to select the kind that suits you.

You can also add different toppings on ice cream, akin to riders on annuities. Like ice cream toppings, annuity riders usually come at an additional cost.

The point here is that you can design annuities to meet your needs. So what one person may consider complicated, others see as customizable.

In general, annuities provide safety, long-term growth and income. You can manage how much income and how much risk you’re comfortable with.

Annuities are a way to save your money tax deferred until you are ready to receive retirement income. They’re often insurance against outliving your retirement savings. And they can be a way to provide for your loved ones after you die or for yourself should you need long-term care.

Annuity expert Stan Garrison Haithcock devised an acronym to describe the benefits of annuities: PILL. It stands for Premium Protection, Income for Life, Legacy and Long-Term Care.

Let’s break that down.

Illustration of the annuity PILL strategy

Premium Protection

Premium protection means you will always walk away with your purchase payment no matter what. In other words: You can’t lose the money you started with.

Fixed annuities of all stripes guarantee the safety of your initial investment. With fixed-indexed annuities, you have both premium protection when the market is down and the possibility of growing your investment when the market is up. You have upside potential with no risk of loss.

Other investments, such as stocks, place your principal at risk. This is something many retirees, in particular, can’t tolerate, as they need their savings to fund their life expenses.

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Income for Life

Many annuities provide the annuitant a stream of guaranteed retirement income for his or her entire life. Depending on the contract, they may also provide income for the annuitant’s spouse for his or her life. That’s known as a joint and survivor option.

A lifetime payout annuity may provide payments that are either fixed or variable. Variable payments would change based on the performance of an underlying investment portfolio. These come with both the promise of greater growth and the risk of loss.

With fixed payments, the dollar amounts are set in the contract and don’t vary. When the market is volatile or on a down cycle, knowing your monthly income will never go down can provide a sense of security that’s invaluable in retirement.

In fact, research has shown that retirees with guaranteed income are happier than those without it. The thought of losing your money, resources or lifestyle is terrifying. An annuity that provides a steady stream of income allows you to live with dignity through retirement. And a guaranteed lifestyle is priceless.

"[Buying annuities] allows you to continue living the way you always have, with money coming in every month, no matter what happens."
— Lauren Minches, Vice President, Blueprint Income

This feature of annuities is especially important in an age in which pensions, with their dependable income, are going the way of the dinosaur. And it can be difficult for a retiree to live off a lump sum of cash by spending just enough to live on without running out.

The promise of income for life is also insurance against outliving your assets. With a life annuity, no matter how long you live, you will continue to receive that stream of income. Even after you’ve been paid your entire premium and any expected earnings, the income will continue. No other investment can provide that promise.

“One of the reasons people become so anxious when they retire is because we go from living off reliable salaries to having almost no reliable income at all,” Tech executive Lauren Minches told Inc. “When you have income from a job, what you spend one month doesn’t necessarily jeopardize what you can do the next month. But when you retire, every dollar you spend in your 60s is one that you won’t have in your 70s. That makes people reluctant to spend anything, because they’re worried about how it will affect them later.”

Minches said those worries can be eliminated by buying annuities.

“It allows you to continue living the way you always have, with money coming in every month, no matter what happens,” she said.


Death benefit riders can allow you to pass on your annuity to one or more named beneficiaries when you die. How this will work will depend on the wording of your annuity contract.

Your contract may provide for a minimum number of payments to go to your beneficiaries, for example. It may stipulate the remaining principal be passed on. Funds may be distributed as a lump sum or a stream of payments.

With a joint and survivor annuity, your spouse can assume ownership of the annuity when you die under the same terms that you received your payments.

Did You Know?
In most states, annuities move over probate-free, meaning the assets go right to the beneficiary.

By including a beneficiary in an annuity contract, you can protect your heirs from having to go through probate. Probate is the legal process of dividing a deceased person’s estate and following a will. Going through probate involves costs and time.

Designating a beneficiary, other than a spouse, is more complicated with a life annuity. But one option is to have a “life with period certain” annuity. This provides that payments will be made for a minimum period of time, such as 10 years, and then for the rest of your life. If you die before the period certain is over, your beneficiary can receive the funds for that remaining time.

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Long-Term Care

Long-term care riders are an option in many annuity contracts. They provide a level of insurance against the expenses of long-term care should you need it.

The average national cost for a semi-private room in a nursing home was nearly $7,700 a month in 2016, according to the United States Department of Health and Human Services. That’s more than $92,000 a year.

Long-Term Care Needs
Someone turning 65 years old has a nearly 70 percent chance of needing some kind of long-term care services in their remaining years.

Long-term care annuity riders don’t pay the entire cost of care or provide the level of reimbursement available from traditional long-term care insurance. But they’re generally much less expensive than the insurance policies, which cost an average of $3,400 a year for a 60-year-old couple in 2019, according to the American Association for Long-Term Care Insurance.

And long-term care annuity riders have been increasingly more popular than the insurance policies. In 2014, the number of annuities with long-term care riders exceeded the number of long-term care insurance policies for the first time.

Such riders generally will increase your annuity payout by some multiple for a designated period of time should you need long-term care. For example, your rider might pay you double your normal income stream for up to five years.

Another option is a contract that allows you to make large withdrawals from your annuity principal if you require long-term care.

Last Modified: January 6, 2020

17 Cited Research Articles

  1. American Association for Long-Term Care Insurance. (2019). Long-Term Care Insurance Facts-Data-Statistics-2019 Report. Retrieved from http://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts-2019.php
  2. Anspach, D. (2019, May 2). What Are Annuities a Good investment? Retrieved from https://www.thebalance.com/are-annuities-a-good-investment-2389015
  3. Boyte-White, C. (2019, March 13). What happens to my annuity after I die? Retrieved from https://www.investopedia.com/ask/answers/122214/what-happens-my-annuity-after-i-die.asp
  4. Centers for Medicare & Medicaid Services. (2008, January 8). Important Facts for State Policymakers Deficit Reduction Act. Retrieved from https://www.cms.gov/Regulations-and-Guidance/Legislation/DeficitReductionAct/downloads/TOAbackgrounder.pdf
  5. CNN Money. (n.d.). Ultimate guide to retirement. What are the advantages of annuities? Retrieved from https://money.cnn.com/retirement/guide/annuities_basics.moneymag/index4.htm
  6. Genworth Financial. (n.d.). Cost of Care Survey 2018. Retrieved from https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html
  7. Haithcock, S.G. (216, October 13). What is the Annuity P.I.L.L. Strategy? Retrieved from https://www.thebalance.com/annuity-p-i-l-l-strategy-145978
  8. Hicks, C. and Moeller, Ph. (2019, February 25). 15 Things You Need to Know Now About Annuities. Retrieved from https://money.usnews.com/investing/investing-101/articles/things-you-need-to-know-now-about-annuities
  9. Kagan, J. (2018, May 25). Lifetime Payout Annuity. Retrieved from https://www.investopedia.com/terms/l/lifetime-payout-annuity.asp
  10. Korn, D.J. (2018, May 16). How clients can use annuities to pay for long-term care. Retrieved from https://www.financial-planning.com/news/as-ltc-insurance-prices-rise-long-term-care-annuities-gain-popularity
  11. Kristof, K. (2019, May 27). Surprise--Money Doesn't Guarantee a Happy Retirement. Here's What Does. Retrieved from https://www.inc.com/magazine/201804/kathy-kristof/happy-retirement-satisfaction-enjoy-life.html
  12. Palmer, B. (2019, February 14). What are the distribution options for an inherited annuity? Investopedia. Retrieved from https://www.investopedia.com/ask/answers/09/inherited-annuity-distribution.asp
  13. Piper, M. (2017, December 4). How Do Long-Term Care Annuities Work? Retrieved from https://obliviousinvestor.com/long-term-care-annuities/
  14. Rose, J. (2016, October 18). 7 Strategies To Protect Your Principal From The Next Stock Market Crash. Retrieved from https://www.forbes.com/sites/jrose/2016/10/18/7-strategies-to-protect-your-principal-from-the-next-stock-market-crash/#4a6c822869b5
  15. U.S. Department of Health and Human Services. (2017, October 10). Costs of Care. Retrieved from https://longtermcare.acl.gov/costs-how-to-pay/costs-of-care.html
  16. U.S. Department of Health and Human Services. (n.d.). How Much Care Will You Need? Retrieved from https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
  17. Updegrave, W. (2016, January 20). How to get guaranteed retirement income for life. Retrieved from https://money.cnn.com/2016/01/20/retirement/retirement-guaranteed-income-annuities/