Annuities are one of the few retirement vehicles that can turn savings into income you cannot outlive. Research from major institutions consistently supports their role in a retirement plan: a 10-year Morgan Stanley Global Investment Office study found hypothetical portfolios with annuity allocations delivered a 19% higher probability of sustaining income over a 30-year retirement, along with 10%+ higher ending wealth. Below are six strategies retirees and near-retirees use to put annuities to work.
1. Guarantee Lifetime Income
For many retirees, the single biggest financial risk isn’t a market crash, it’s outliving their savings. A lifetime income annuity converts a portion of your nest egg into a paycheck you can’t outlive, transferring longevity risk from you to the insurance company. Unlike withdrawals from a 401(k) or IRA, these payments continue regardless of how long you live or how markets perform.
Who it’s best for: Retirees who want a predictable “income floor” to cover essential expenses such as housing, healthcare, food and utilities without worrying about sequence-of-returns risk or running the numbers on a 4% withdrawal rule every year. Especially valuable for those without a pension, those in good health with a long life expectancy, or couples who want survivor protection built in.
For example, a 65-year-old who places $250,000 into a single-premium immediate annuity (SPIA) could receive roughly $1,550 to $1,700 per month for life, depending on current rates and whether they choose a joint-life or single-life payout. Over a 25-year retirement, that’s more than $465,000 in guaranteed income from a $250,000 premium, with payments continuing even if they live to 100.
Most people who reach out to me about annuities want it for income. As people approach retirement, they often seek more assurance on their income rather than the risks from the stock market that they are used to. Annuities are providing a lot of guaranteed income right now because of the high interest rate environment.
John Stevenson, CFFOwner and Advisor at Stevenson Retirement SolutionsJohn Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he’s ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.
2. Ladder for Flexibility
Instead of locking all your savings into a single annuity at today’s rates, annuity laddering splits your principal across multiple annuities with staggered maturities. If you have $300,000 to commit, you might place $100,000 into a 3-year MYGA, $100,000 into a 5-year, and $100,000 into a 7-year. As each contract matures, you can reinvest at prevailing rates or redirect to income, giving you both rate protection and flexibility as market conditions change.
| Ladder Rung | Term | Example Allocation | Maturity Action |
| Rung 1 | 3 years | $100,000 | Reinvest at new rates or withdraw |
| Rung 2 | 5 years | $100,000 | Reinvest at new rates or withdraw |
| Rung 3 | 7 years | $100,000 | Reinvest at new rates or withdraw |
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The goal of this strategy is to maximize your return by dividing your principal among a variety of annuities at different times. This allows you to take advantage of changing interest rates without missing opportunities in the current market.
3. Bridge to Social Security
Purchasing an income annuity can help you delay claiming Social Security benefits, boosting your overall retirement income. Americans born after 1960 aren’t eligible for full retirement benefits until they turn 67, but many people don’t want to wait until they reach full retirement age to retire.
By purchasing an income annuity that pays a guaranteed amount each month for a set number of years, you can retire and still receive income every month until you’re ready to claim Social Security benefits. This strategy could result in receiving up to 24% more income from your Social Security benefits if you wait until you turn 70 before claiming.
Example
Consider Maria, who turns 65 this year. She could claim Social Security now for $2,400/month, or wait until age 70 and receive approximately $3,400/month — roughly 40% more, for life. The challenge is covering the five-year gap. Maria uses $150,000 from her 401(k) to purchase a 5-year period-certain immediate annuity that pays about $2,700/month.
This bridges her income until age 70, at which point her delayed Social Security kicks in at the higher rate and continues for the rest of her life. Net result: over a 25-year retirement, Maria collects roughly $300,000 more in guaranteed lifetime income by using an annuity as a Social Security bridge.
4. Defer Taxes on Growth
Annuities grow tax-deferred, meaning you won’t be taxed on the interest your annuity earns until you withdraw those earnings from the contract. This allows you to retain more of your annuity’s value, which can then compound further before you start taking income.
Hedging Against Income Tax With Annuities
Retirees can use annuities to provide stability as their tax rates change throughout retirement. This can be especially useful for married couples. If one spouse outlives the other, the surviving spouse must then file as a single taxpayer. A change in filing status can substantially increase their tax rate during a time when the surviving spouse has less income to depend on.
A joint and survivor annuity will continue paying the same amount of income even after one spouse dies, and this income won’t be taxed as heavily because only a portion of each annuity payment is considered taxable income. In this way, an annuity could provide a stable income stream for married couples in retirement.
Navigating RMD Requirements With an Annuity
If you have a traditional IRA or 401(k), the IRS requires you to make withdrawals of certain minimum amounts when you turn 73 and every year after that. Those withdrawals are called required minimum distributions (RMDs).
RMDs can have tax and savings implications that some retirees want to avoid, especially if they don’t need to spend the money when withdrawals are required. You can use annuities to mitigate those concerns.
For example, you can use the money you’re required to withdraw to purchase a flexible premium fixed annuity. With a flexible premium annuity, every premium payment adds to the annuity’s value, and the annuity will continue to grow tax-deferred.
This is not a way to avoid the immediate tax implications of the RMD, but it will help you make the money last longer.
Incorporating Qualified Longevity Annuity Contracts (QLACs)
A qualified longevity annuity contract (QLAC) is a deferred annuity purchased inside a qualified retirement account. Under the law, a QLAC can account for up to $200,000 of the retirement account’s total balance.
The value of the annuity is exempt from required minimum distributions, which means an annuity strategy that includes a QLAC can reduce your RMDs by as much as 25%.
You are not required to take distributions from a QLAC until the age of 85. This allows the money to accumulate over a longer period, resulting in greater income-benefit payments from the annuity.
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5. Diversify Retirement Income
Because they offer guarantees, annuities can provide diversification as a hedge against the stock market’s volatility. Including an annuity as part of your overall retirement plan gives you some security as you allow your other investments to grow.
Combining Fixed and Indexed Annuities
One strategy for diversifying your portfolio with annuities involves combining fixed and indexed annuities. Instead of putting some of your savings into one annuity, you could split that premium amount and put part of it into a fixed annuity and the other part into a variable annuity.
In this scenario, the portion of the portfolio allocated to fixed annuities contributes reliable growth, principal protection and the option for guaranteed income payments. The indexed annuity offers greater return potential through market participation, helping offset the risk of inflation eroding your retirement savings.
Utilizing both types allows investors to capitalize on the advantages of both products while hedging against their disadvantages. Conversely, you can take advantage of the market participation that indexed annuities offer without fully exposing yourself to downside risk.
Frequently Asked Questions About Annuity Strategies
The right strategy depends on your retirement goals. Retirees focused on income security often use a lifetime income annuity; those concerned about locking in at today’s rates use laddering; those who have maxed out 401(k) and IRA contributions use nonqualified annuities for tax-deferred growth. Most retirees combine two or more strategies.
Minimums vary by insurer but typically start around $5,000–$10,000 for a single annuity. Laddering strategies work best with $100,000 or more, since splitting smaller amounts limits your product choices.
Annuities work best as a third layer that complements — not replaces — Social Security and 401(k) withdrawals. Social Security provides inflation-adjusted income you cannot outlive; a 401(k) offers growth and liquidity; an annuity fills gaps, bridges delayed Social Security, or provides guaranteed income beyond these sources.
The Social Security bridge strategy uses an annuity to replace Social Security income during the years you delay claiming benefits. Delaying from age 62 to age 70 increases benefits by roughly 77%; a period-certain annuity can cover the gap and effectively purchase that higher lifetime payout.
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