As women continue to make strides in the workforce and take more control of their financial futures, it’s important to explore financial tools that can help provide stability in retirement. One financial tool that may be particularly advantageous for women in retirement planning is annuities, which have undergone a makeover from their traditional origins.

Let’s explore why annuities may be essential additions to women’s retirement strategy.

Understanding annuities

Before we delve into the more modern aspects of annuities, let’s review their basics. An annuity is a contract between the contract owner and an insurance company. In exchange for a lump sum payment or a series of payments, the annuity issuer promises to provide regular income payments to the annuitant, either for a specific number of years or for the rest of their life. Depending on the type of annuity, they provide options that can grow the initial purchase payment so the annuitant can receive more in regular payments over time than they initially put in.

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Annuities offer features that can be particularly advantageous for women in retirement planning.

 

The different types of annuities include:

  • Fixed annuities: Offer a guaranteed interest rate to grow your money.
  • Variable annuities: Allow contract owners to choose from a variety of investment options offering potential for higher growth, but with market-related risks.
  • Indexed annuities: Provide account options linked to market indexes, offering a balance between principal protection and growth potential.
  • Income annuities: Provide options to start income payments now or in the future, and can include options for payments to increase over time to keep up with inflation.
Annuities as guaranteed income in retirement for women

Traditionally, annuities have been associated with people looking for a reliable source of income later in life. While this aspect remains valuable, the modern approach expands their features to support a wider range of scenarios, particularly as a financial tool for women.

Women face unique challenges that make securing their financial future more difficult:

  • Women earn less (82 cents for every dollar a man makes) over the course of their careers, so they have less to invest or save.1
  • They are more likely to take time away from work to be caregivers and have fewer years of employment to contribute to their 401(k) or Social Security.2
  • Women tend to live longer than men and are more likely to live alone in their golden years,3 so they need their money to last longer.

Given these challenges, why should women consider annuities as part of their retirement strategy?

  • Flexibility: Annuities come in various shapes and sizes, offering flexibility that suits different financial goals. Whether you’re planning for retirement, growing your savings or simply seeking a stable income stream, there’s likely an annuity option that meets your needs.
  • Growth options: Traditional fixed annuities provided only a fixed interest rate, which is a conservative choice. Today, you can opt for variable or indexed options that allow you to align your annuity with your risk tolerance and retirement goals.
  • Tax benefits: Any interest you earn in annuities grows tax-deferred until it’s withdrawn. You might be in a lower tax bracket at that time, allowing you to keep more of your money.
  • Customization: Many annuities can be customized with riders and options. For example, “lifetime income riders” on some annuities can guarantee a minimum income stream for life while still having the potential for growth.
  • Legacy planning: Many annuities offer options for leaving a legacy to your loved ones by ensuring that any remaining funds in the annuity are passed on to beneficiaries.
  • Peace of mind: Retirement planning can be daunting, but annuities can offer a sense of stability. Knowing that you have a guaranteed source of income can help reduce financial stress so you can focus on enjoying your retirement years to the fullest.

Women continue to make significant progress in achieving financial independence and securing their financial futures. Considering the unique challenges they face, annuities can play an important role in helping women retire with confidence and financial stability.

To make informed decisions about annuities, consult with a financial professional who can help you assess your needs and choose the right options for your financial goals.

 

Additional reading:

Why women save less for retirement, and strategies that can help

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