Buying an annuity is a strategic step to ensure financial security throughout retirement. At Paradigm Life, we incorporate annuities into the Perpetual Wealth Strategy™ as part of a holistic approach to building lasting wealth, creating reliable income streams, and securing your financial future. Annuities can provide guaranteed income, significant tax advantages, and stable returns—making them a valuable element in your retirement plan. And in this guide, we’ll tell you everything you need to know to buy an annuity.
What Is An Annuity?
An annuity is a financial product designed to provide a steady stream of income, typically for retirement. When you purchase an annuity, you enter a contract with an insurance company, where you make an upfront payment or a series of payments. In return, the insurer guarantees regular income, either immediately or in the future, depending on the type of annuity selected.
How Annuities Work
Annuities transform your investment into consistent income while offering tax-advantaged growth. Your contributions grow tax-deferred until you begin receiving payments, at which point you have options for structured payouts—such as monthly or annual income. When properly integrated into a retirement strategy, annuities offer dependable income for life.
Types of Annuities
Before knowing how to buy an annuity, you have to know your options. Selecting the right annuity type depends on your income timing and retirement goals. Here are the key options:
- Income annuity: Also known as an immediate annuity, it begins payments shortly after purchase, providing an instant income stream—ideal for retirees needing immediate income.
- Deferred annuity: Payments start at a future date, allowing your investment to grow tax-deferred during the accumulation period. This option works well for those planning ahead and wanting income in later years.
- Immediate annuity: Similar to an income annuity, this starts payouts immediately, giving instant access to retirement income for those ready to transition from working income to retirement income.
The Role of Annuities in a Retirement Income Strategy
Annuities offer several advantages, from guaranteed lifetime income to tax benefits. Integrating an annuity into your retirement income plan creates a reliable financial base for living expenses and provides protection against market volatility. Here’s how annuities support a comprehensive retirement plan:
- Guaranteed income: Lifetime income streams help ensure that retirement funds last as long as needed.
- Tax advantages: Contributions grow tax-deferred, maximizing long-term growth.
- Diversification: Annuities add stability to a retirement portfolio, balancing more volatile investments.
- Flexible options: From immediate to deferred payments, annuities can be tailored to meet specific income needs.
The Best Annuities for Retirement Income
Choosing the right annuity depends on your retirement goals, risk tolerance, and when you need income to begin. Below are options for those looking to generate stable income in retirement:
How to Choose the Best Annuity for Your Income Strategy
When selecting the best annuity for retirement income, consider the following:
- Immediate vs. delayed income: Do you need income now or can you delay it to benefit from tax-deferred growth?
- Risk tolerance: Are you seeking stable, predictable income, or are you open to options that may fluctuate with the market?
- Long-term goals: Consider if you want income for life or the option to leave a legacy through an annuity with a death benefit.
Immediate Annuities vs. Deferred Annuities
Both immediate and deferred annuities offer benefits based on when you need retirement income. Here’s how they compare:
- Immediate annuities: Provide instant income after a lump-sum payment. This is ideal for retirees looking for predictable cash flow right away, with guaranteed payments that remove market risk.
- Deferred annuities: Enable growth over time with payouts beginning at a later date. This allows your money to grow tax-deferred until needed, making deferred annuities ideal for those still working or saving for future retirement needs.
Choosing the best option depends on your timeline and preference for immediate versus delayed income.
How to Buy an Annuity: Step-by-Step
Buying an annuity is a straightforward process when following these essential steps:
1. Evaluate Your Retirement Needs
Identify your financial needs by asking:
- How much income is needed for daily living expenses?
- Are you seeking guaranteed lifetime income or open to variable returns?
2. Choose the Right Annuity Type
Consider your timeline for income needs:
- Immediate Annuity: If you need income now, this is ideal for providing instant cash flow.
- Deferred Annuity: If you can wait, a deferred annuity offers growth and income flexibility for the future.
3. Compare Rates and Payouts
If considering deferred annuities, compare rates and payout options in advance to maximize your returns.
4. Understand Contract Terms and Fees
When you’re about to buy an annuity, review key terms such as surrender charges, annuity fees, and payout structures to ensure they fit your financial goals.
Annuity Death Benefit and Other Key Features
Certain annuity features add value by protecting loved ones and securing your financial future:
- Annuity death benefit: An annuity with a death benefit allows remaining funds to go to your beneficiaries. This guarantees that your investment will benefit your loved ones even if you pass away before receiving the full payout.
- Inflation protection: Guard your income against rising costs with inflation-protected annuities, which adjust for the cost of living to maintain purchasing power.
- Tax-deferred growth: Annuities offer tax-deferred growth, allowing your investment to compound efficiently and providing a powerful progressive income tax advantage.
- Spousal benefits: For couples, spousal benefits continue payments to your spouse after your passing, ensuring both partners have financial security in retirement.
The Role of Annuities in the Perpetual Wealth Strategy™
Annuities are a key component in Paradigm Life’s Perpetual Wealth Strategy™ for creating stable income and minimizing risks in later-life finances. That’s why knowing how to buy an annuity is so important. Here’s how annuities fit into this holistic strategy:
- Guaranteed income: Annuities provide predictable income, reducing the need to draw from other assets.
- Protection against market volatility: As a secure income source, annuities protect against market fluctuations, supporting consistent cash flow.
- Legacy planning: Certain annuity structures help transfer wealth to beneficiaries, preserving assets for future generations.
The Perpetual Wealth Strategy™ emphasizes resilience and control, making annuities an ideal fit for those looking to build, protect, and sustain wealth.
Secure Your Financial Future and Legacy with Annuities
Annuities provide lasting financial stability and tax advantages that ensure a reliable income in retirement. By incorporating annuities into your strategy, you create a solid foundation for retirement security while safeguarding your legacy.
Ready to explore how an annuity can enhance your retirement strategy? Schedule a consultation with Paradigm Life today to align your goals with the Perpetual Wealth Strategy™ for lasting financial confidence.
FAQs About How to Buy an Annuity
Which type of annuity gives more income per dollar of outlay than any other type?
An immediate annuity generally provides the most income per dollar of outlay compared to other annuities. This is because you begin receiving payments shortly after making a lump-sum payment. Since the insurance company doesn’t have to wait for the money to grow, it can offer higher monthly payments based on your age and life expectancy. Immediate annuities are ideal for retirees who need income right away and want to maximize their payouts without delay.
What Is a tax-deferred annuity?
A tax-deferred annuity allows your investment to grow without being taxed until you start receiving payments. During the accumulation phase, the earnings on your contributions are not subject to taxes, which allows the money to compound more effectively over time.
Once you begin withdrawals in retirement, the payments are taxed as ordinary income. This feature is especially beneficial if you anticipate being in a lower tax bracket during retirement, as it helps maximize the growth of your investment.
What is total lifetime income streams?
Total lifetime income streams refer to guaranteed payments from an annuity that continue for the rest of your life. When you purchase an annuity with a lifetime option, the insurance company commits to providing you with regular payments—whether monthly, quarterly, or annually—for as long as you live. This feature ensures that you will not outlive your retirement savings, offering long-term financial security and peace of mind.
What is an annuity contract?
An annuity contract is a legal agreement between you and an insurance company that outlines the terms of your annuity purchase. It specifies how much you will invest, when and how you’ll receive payments, and other key details such as fees, payout options, and any additional features like death benefits or inflation protection.
The contract also defines whether the annuity is immediate or deferred, fixed or variable, and any guarantees provided, such as a lifetime income stream. Before signing, it’s important to carefully review the contract to ensure it aligns with your retirement goals and financial needs.
