Terry Turner, Financial writer for Annuity.org
  • Written By
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner is a senior financial writer for Annuity.org. He holds a financial wellness facilitator certificate from the Foundation for Financial Wellness and the National Wellness Institute, and he is an active member of the Association for Financial Counseling & Planning Education (AFCPE®).

    Read More
  • Edited By
    Lamia Chowdhury
    Headshot of Lamia Chowdhury, editor for Annuity.org

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

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  • Published: September 19, 2023

Adding Annuities to Your Retirement Toolbox

In this episode, we begin a conversation with Rob Williams, managing director of the Schwab Center.

Rob is a Certified Financial Planner™ professional (CFP®), Retirement Income Certified Professional® (RICP®) and Certified Private Wealth Advisor® (CPWA®).

He discusses how annuities can be a tool in some people’s retirement planning toolbox and how to balance them with other retirement tools such as employer retirement plans and IRAs.

In this episode, you’ll learn:

  • Some of the potential advantages of choosing annuities as a retirement option.
  • Drawbacks and limitations you should be aware of before considering annuities.
  • How annuities compare to other options regarding access to funds and making changes to your plan.

This Episode's Guest

Rob Williams, CFP®, RICP®, CPWA® Rob Williams, CFP®, RICP®, CPWA®
Managing Director, Financial Planning, Schwab Center for Financial Research
About Rob Williams


Terry Turner

Welcome to the Annuity.org Podcast, your path to financial freedom through better understanding annuities, selling structured settlements, personal finance and retirement planning. I’m Terry Turner. In this episode, we’re talking to Rob Williams. He’s the managing director of financial planning, retirement income and wealth management at the Schwab Center for Financial Research. He’s also a Certified Financial Planner and holds Retirement Income Certified Professional and Certified Private Wealth Advisor designations. Today, we’ll discuss the pros and cons of annuities versus other retirement options. So Rob, when it comes to retirement planning, annuities are just one option among many for people who are planning their retirement. Could you provide a high-level overview of some of the alternative retirement options to annuities?

Rob Williams

Yeah, sure. I think the first thing, Terry… And first, it’s great to be here, so thank you. Retirement is a big topic. Annuities are a big topic. There’s many types. So, when we answer that question or I answer that question, I tend to think about, well, what’s the purpose? What stage are you using an annuity for? We tend to divide it into three. So, one is you’re saving for retirement, and there are some uses for annuities to do that. Some is transition to retirement. You want something stable that provides a guaranteed return that gets you to the retirement date. And then, I think the big one probably that most people think about is annuities for income in retirement. So, starting with that goal first is important, and then that really, to me at least, helps break down this annuity question a little bit more clearly. Start with where are you in your retirement time horizon there, and then what are you trying to achieve. So, Terry, I hope that helps as a way to start. Then after that, if we’re talking mostly about that transition to income in retirement, the thing that I try to focus on the most is that it’s not an either/or decision. We tend to think of tools. If you have… There’s this old saying, if you have nails, you go get a hammer. In this case, you can use the two big tools, which are your investment portfolio, which hopefully you have, and the second, which is annuities, which really are a form of insurance. It’s one way to think of them. So combining those two, we can talk about some of the pros and cons of each, but that tends to be the approach I recommend. It’s sort of what does each do and how they work together.

Terry Turner

Well, let’s talk about some of the tools of retirement. What are the key differences between annuities and the other common retirement vehicles, like 401ks or IRAs regarding growth, taxation, distribution and any other mechanics that go into retirement planning?

Rob Williams

Sure, and that’s related a little bit to the, okay, I’m saving for retirement. And so you have a variety of different vehicles that you can do that. And most often, it’s how do you do that in a tax-advantaged way? So, 401k is a great one. An employer provides it. You can contribute straight from your paycheck, save and invest a variety of different investments. You usually have a wide choice. And your contributions go in before tax, so it’s tax-advantaged. And any growth in it, as it grows, is tax-deferred, so you don’t have to pay tax when, say, you earn some income on those investments, et cetera. And the real… We tend to suggest those first because most of you get an employer match, so the employer might match and pay some money in for you. Then, you move to IRAs, and those are more of an independent retirement account. Either something you can create on your own if you don’t have a 401k and you want to have some taxed-advantaged savings. Or even if you do have a 401k and you’ve just maxed that out and you want to add an IRA. So annuities are really that third tool. It’s not technically an account type, but it’s a vehicle for getting more tax-advantaged savings. So, if you’ve maxed out those other types and you’re using an annuity to save for retirement, you can put money in, and growth within it is tax deferred. So, it’s a nice tool there. It tends to, for us, come after those first two as a vehicle to save for retirement.

Terry Turner

How do you balance these three tools to get the maximum flexibility for your retirement savings, your retirement income?

Rob Williams

I tend to take them in the order that I just described. So at Schwab, we have what we call our savings fundamentals, and it starts with an order. And first, have emergency funds and pay down high-interest-rate credit cards. That’s a good first step for anyone. After that, the 401k with a match from your employer is really the most efficient first choice. It’s tax-advantaged. Employer provides a match up to a certain amount. That’s functionally free money to you. So, anyone that has a 401k from an employer, that’s the place to start. Then there are limits on how much you can contribute. For many people, that may be the one place that they save, and that may be plenty. For most people, that may be plenty. IRA is kind of the second, and we didn’t talk about it, but there are two flavors, really. There are traditional IRAs and Roth IRAs. Roth IRAs, you contribute after-tax, so no upfront tax benefit. But they’re really nice to have in your toolkit there, because unlike the other options, traditional 401k and IRA, once you get to taking money out, you don’t pay tax then. So it’s a nice little wild card to have. It’s a hedge against future taxes going up. So it’s nice to have that as well. It’s sort of yes, and — the last really, to me, is the annuity. And annuities are a useful tool. I tend to think of them as being an insurance vehicle for once you get to retirement and you want to generate a paycheck, you want to generate income, and you want to protect that for life. So you can add those later once you get to that stage. But I tend to think of the annuity in terms of saving for retirement as really that third choice and option. Quickly, I’d be remiss if I didn’t say brokerage accounts too. That’s a tool as well, and certainly, you can save and invest in those for retirement or for any other goals. So really, those are the four major tools, I think, in terms of where to put money for a goal.

Terry Turner

Well, you mentioned you’ve been talking about some of the advantages of choosing annuities in a retirement plan. On the flip side, what are some of the drawbacks or limitations that people should know about before considering annuities as part of that plan?

Rob Williams

Yeah. I think that some drawbacks to an annuity are starting with those first two. 401k and IRA are really generally going to be the most [common] investment options within them. There are different types of annuities to save for retirement. A variable annuity is a type where you can get access to various types of mutual funds, but that selection can be a little bit more limited. There’s also what’s called fixed annuities and deferred annuities, which are a little bit more like buying a bond, et cetera. Those can be helpful, but weigh the pros and cons of what the promised interest rate on those is, the rate of return compared to what you could get just by buying bonds in a portfolio. So those are some. Annuities also can have some lock-in and a little less flexibility depending on the terms, et cetera, especially for a few years prior to purchase. So make sure you understand all those terms prior to. There are certainly some differences there. Once it gets to that later phase of, “Okay, now I’m moving into retirement. I’ve been saving and I’m investing,” there are different rules and timing, et cetera. But generally speaking, right now, we’re mostly talking about annuities as an accumulation vehicle. Certainly would love to talk about that next phase. “I need income for retirement,” and “What are the pros and cons of each of those tools then?”

Terry Turner

Rob, thanks for joining us.

Rob Williams

Thank you.

Terry Turner

Rob Williams, the managing director of financial planning, retirement income and wealth management at the Schwab Center for Financial Research. In our next episode, we’ll continue our discussion with Mr. Williams about annuities as part of your retirement planning and some resources to help you decide how annuities may work for your retirement plans. Thank you for joining us on this episode of the Annuity.org Podcast. For more information about annuities, personal finance and anything else we talk about here, check out Annuity.org, your path to financial freedom. You can subscribe to the Annuity.org podcast for free. It’s available wherever fine podcasts are found. Our theme music, Feeling Good, was produced by White Hot, available at freebeats.io. I’m Terry Turner for Annuity.org.

Thoughts and opinions expressed in this podcast are strictly anecdotal and should not be taken as financial advice. Views of the interviewee do not necessarily reflect those of the author, editor or Annuity.org.
Last Modified: November 9, 2023
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