Why Do I Need an Annuity?

We’re living longer than previous generations, and retirement is lasting 20–30 years for many households.

At the same time:

• Markets feel unpredictable
• Traditional pensions are disappearing
• Healthcare and long-term care costs are rising
• Many retirees worry about running out of money

That combination makes it harder than ever to feel financially secure.

This is exactly where annuities can help: by solving problems no other financial product can, especially when it comes to protecting retirement income.

In this guide, we’ll break down what annuities do, how they benefit your financial plan, and when they might not make sense for you.

Risk Management

Most people think of retirement planning as building the biggest possible nest egg. But eventually, the conversation shifts to, “how do I make this money last?”

Annuities are insurance products designed to eliminate one of the biggest risks in retirement: the risk of outliving your money.

They’re the only financial vehicle that can contractually guarantee income for as long as you live, no matter how long that ends up being. That means:

• You’re protected from market downturns
• You’re protected from poor returns in early retirement
• You’re protected from simply living longer than expected

Fixed annuities and certain guaranteed income riders protect your income even when the market drops, ideal for risk-averse investors or those close to retirement.

Tax Efficiency

For high earners or those already maxing out retirement plans, annuities can be a powerful tax tool.

Your interest and gains grow without being taxed annually, until you withdraw them. That means:

• More money stays invested
• Growth compounds faster
• You may withdraw funds in a lower tax bracket in retirement

Unlike IRAs or 401(k)s, annuities have no annual contribution limits.

This makes them especially useful for people playing “catch-up” as they near retirement or those with significant taxable savings.

Estate Planning

Many people are surprised to learn how effective annuities can be in estate planning.

Depending on the type, they can:

Provide Heirs with Guaranteed Income

Instead of a lump sum that might be spent quickly, an annuity can distribute income over years, ideal for heirs who need structure or are less comfortable managing money.

Grow or Preserve Principal with Lower Risk

Annuities offer more stability than investments that fluctuate with the market, while still providing opportunities for growth.

Reduce Taxes for Your Heirs

Certain strategies, such as placing Roth assets inside an annuity or using annuity income to purchase life insurance, can reduce or even eliminate taxes owed by beneficiaries.

Help Bypass Probate

Properly structured annuities pass directly to beneficiaries, avoiding:

• Probate delays
• Court fees
• Family disputes

Provide a Lower-Cost Alternative to a Trust

While trusts are excellent tools, they can be costly to set up and maintain. For some families, an annuity can accomplish similar goals with fewer administrative costs.

When Annuities Might Not Make Sense

Annuities are powerful, but not perfect. They may not be ideal if:

• You have serious health issues that significantly reduce life expectancy
• You need full access to your money or maximum liquidity
• You have insufficient savings and need flexibility over guarantees

Good planning requires an honest look at your health, goals, time horizon, and overall financial picture.

The Bottom Line: Do You Need an Annuity?

If you value:

• Lifetime income
• Protection from market risk
• Tax-deferred growth
• A structured legacy for loved ones

…then an annuity may be a strong addition to your retirement plan.

But the right annuity, like any financial product, depends on customization. The key is aligning the features with your specific goals, health, and comfort level with risk.

Maybe you already own an annuity… but is it the right one for you? Let’s talk it through. Reach out to DeWitt & Dunn and we’ll help you compare the pros and cons based on your situation.