Annuities Explained: A Powerful Tool for Retirement

In simple terms, an annuity is an agreement between you and your insurance company. This agreement allows you to pay now into a tax-deferred account (in either a lump sum or series of payments) with the understanding that you will receive an income in the future. 

Let’s dig a little deeper to discuss the variety of options an annuity can offer.

How an Annuity Works

Annuities are most often used as retirement planning tools. In this case, you would purchase an annuity to ensure that you would receive a lump sum or steady stream of income following retirement. 

If the annuity is set up as a series of payments, you can choose a plan that provides income for the rest of your life. You could not outlive the annuity, which is why it serves as such a comfort to those who are unsure they’ll have enough money after retirement. This isn’t always the case, however, as you can also choose to receive the income for a specified amount of time.

The type of annuity you choose and its terms depend on your goal. 

Four Types of Annuities

There are four popular types of annuities:

1. Variable

This type of annuity provides you with more control over your assets. Variable annuities are based on investments, meaning that you can choose between sub-accounts to invest your money. Your future income from this annuity is determined by how well your investments perform. Though it holds a certain amount of risk, as any investment does, a variable annuity offers the possibility of significant growth.

2. Fixed

A fixed annuity carries less risk than a variable annuity. This type of annuity has a guaranteed interest rate. Unlike a variable agreement, you will receive the exact income you expect when the time comes. This annuity is an excellent choice for those who are more risk-averse.

3. Fixed Indexed

A fixed indexed annuity is somewhat of a hybrid of the previous two we’ve talked about. Like a variable annuity, the fixed indexed gives you the opportunity for growth. However, it doesn’t come with all the risk of a variable annuity, as a fixed indexed annuity protects your principal when the market is down. For those who are moderately risk-averse, this may be their best option, as they get a taste of both worlds.

4. Immediate

Immediate annuities allow you to pay a lump sum in exchange for an immediate stream of income. This income can start as soon as you pay, or you can defer payments for one year. 

What to Consider When Purchasing an Annuity

As we mentioned, the type of annuity you choose largely depends on the result you would like to see. Here are a few considerations to focus on: 

Risk Tolerance

This factor will help you determine between variable, fixed, and fixed indexed annuities. The level of risk you are willing to take, or the level of risk your advisor suggests is best, could make your decision.

Term Length

As retirees are living longer, many choose to receive a steady stream of income for the rest of their lives. Consider what will benefit you most in the long run—one lump sum, a stream of income for a set amount of year, or a stream of income that you cannot outlive.

Overall Need

An annuity isn’t a cure-all for retirement savings. It’s a tool that can be leveraged to provide for you, just as your 401(k) or your IRA is there to serve you in the future. Discuss your interest in an annuity with a financial advisor before you make a final decision. They will provide insight into whether this is the right tool for you and how it works with your overall financial health and long-term plan.

How You Can Get Started

Southwestern Investment Group is here to help. Our advisors are experts in retirement planning. We analyze your current finances, listen to your dreams and goals, and design a plan that fits your needs. If you’re considering adding an annuity to your investment portfolio, reach out to a Southwestern advisor near you to explore your possibilities. 

Contact us today to see how our advisors can pave the way to your financial success.

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Jeffrey T. Dobyns


President, SageSpring | Financial Advisor, RJFS 

Jeffrey T. Dobyns

President, SageSpring | Financial Advisor, RJFS

Beyond crunching numbers and investment strategies, at SageSpring, we’re about building relationships. When you encounter Founder & President of SageSpring, Jeff Dobyns, it’s easy to understand why this is at the very heart of who we are as a firm. You won’t find stuffy formalities with Jeff; instead, you can expect to find him sharing a warm smile, communicating a compelling vision, or patiently untangling life’s complex challenges with clients. He believes in truly getting to know clients, understanding their aspirations and priorities, and navigating their financial plans with a tailored, comprehensive approach. Our team members have often been caught taking notes on Jeff’s effortless relationship skills from a distance, and we admire them for striving to learn from one of the best. 

Jeff’s financial expertise and wisdom are the perfect match to his innate people skills. Jeff holds the prestigious CERTIFIED FINANCIAL PLANNERTM certification, Chartered Life Underwriter (CLU®), and Chartered Financial Consultant (ChLU®) designations, and has held executive positions with financial planning firms for more than two decades. 

His dedication extends beyond the office to the boardroom and the local community, where Jeff is passionate about giving back. He serves as Chairman of the Board of Men of Valor, a prison ministry and mentoring program. Jeff also serves on the board of Send Musicians to Prison, which shares hope, healing and restoration with the imprisoned through musicians & artists. Jeff actively supports other initiatives in the community by sitting on the board of The Signatry of Middle Tennessee and the Halftime Institute of Nashville. 

Witnessing his four children, Gracyn, Hunter, Tanner, and Logan, excel on the field is almost just as rewarding, if not more, than celebrating the victories of seeing his clients overcome obstacles and build wealth. Spending weekends boating on the lake, hiking mountain trails, and fishing with his family are the moments Jeff cherishes most. It’s this grounded perspective that reveals the true meaning of wealth for Jeff: not just numbers on a page, but the freedom to create experiences that enrich your life and the lives of those you love. When you choose the Dobyns McMillin Wealth Team, you choose more than financial expertise. You choose a partner who champions your dreams, celebrates your victories, and walks besides you on the path to achieving your unique goals.

**Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER TM, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.