Is An Annuity Right For You?
Annuities are long-term insurance contracts that provide a regular income stream for a specific period of time, or for the remainder of the beneficiary's lifetime. Annuities can help you avoid outliving your income and can be an important component in retirement planning. Is an annuity right for you?
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An annuity is a contract that allows you to invest a sum of money with a life insurance company in exchange for a guarantee of future fixed income over a set period or even a lifetime. Annuities are typically used to accumulate assets for retirement or to generate income during your lifetime or your beneficiary’s lifetime.
For military members and veterans, annuities can be a valuable complement to an already strong retirement foundation, providing guaranteed income alongside a military pension, TSP withdrawals, and Social Security benefits.
When determining whether an annuity is the right asset to add to your portfolio, consider the following questions:
Are you close to retirement age or retired?
A fixed annuity can provide guaranteed income for the remainder of your life. Unlike your other savings and retirement accounts, which you could outlive, you cannot outlive an annuity so long as you choose a “life income” payment option. If you are at all worried about budgeting in retirement, an annuity can make your life easier by guaranteeing a certain amount of income each month. You’ll receive this in addition to any Social Security benefits, military pension, or TSP distributions.
Note: While immediate annuities are more often used by people in retirement, deferred annuities offer the greatest advantage when started early to allow for a longer accumulation phase. Some deferred annuities allow you to choose a fixed lock-in period, such as 5, 7, or 10 years, that guarantees your interest rate for that period.
Do you have funds in a savings account or certificate of deposit earning a low interest rate?
According to the FDIC, the average interest rate for a savings account is 0.39% as of early 2026. You may get a higher rate of return if you put your money into an annuity instead of leaving it in an account with an interest rate that may not even keep up with inflation. An annuity also provides a guaranteed interest rate – something you will not find as a feature of a savings account.
Furthermore, if your money is tied up in high-risk investments (e.g., stocks), it may be wise to allocate some of it to a less risky product, such as an annuity. Diversifying your income sources will help mitigate risk in the long run. Many annuities have low minimum investment requirements, sometimes as little as $100.
Do you want to receive guaranteed income for as long as you live?
With an annuity, provided you select a “life income” payout option, you will receive guaranteed monthly payments for the duration of your life. Common payout options include:
- Life Income with No Death Benefit: You receive the highest monthly income, with payments that are guaranteed for life. Payments stop upon your death.
- Life Income with Period Certain: You will receive guaranteed payments during your life, with an additional “period certain”, a preselected length of time during which your beneficiary will continue to receive payments after your death.
- Joint and Survivor Income: You and a joint annuitant receive guaranteed payments until the death of either of you. At that time, the survivor continues to receive a previously decided-upon percentage of the original payment amount until his or her death.
Do you have a low risk tolerance for investments?
If you are risk-averse, an annuity may be the perfect fit for you, since annuities reduce overall portfolio risk while providing for a predictable and steady growth of assets, regardless of market volatility and fluctuations. This means your money will grow safely and at a guaranteed rate, without you having to worry about the economy or conditions beyond your control.
Even if you are a bit of a risk-taker when it comes to your finances, you may want to consider diversifying your portfolio with an annuity. The overall level of risk with an annuity is low, and you will get stability you won’t find elsewhere during a volatile market.
Do you want a tax-deferred investment?
Deferred annuities grow in a tax-deferred manner, meaning that you are not required to pay taxes on any of your earnings until you begin receiving distributions. Over time, this can save you a substantial amount of money.
Other tax-deferred investment vehicles, like traditional IRAs, have contribution limits, $7,500 per year in 2026, or $8,600 if you are age 50 or older. Annuities do not have such restrictions, making them a useful option for military members who have already maxed out their TSP and IRA contributions and are seeking additional tax-deferred growth.
Do you want the flexibility of investing outside of a retirement account?
If you regularly max out your retirement account contributions and have extra money that you would like to invest in a low-risk manner, an annuity can be used to safely grow a sum of money for any time horizon. Some annuities do not have surrender fees, giving you flexibility, though this varies by provider, so always review the terms carefully before committing.
Note: You may outlive your retirement funds if you do not budget properly or if your expenses exceed your expectations. Purchasing an annuity with a life income payout option guarantees that you will always have some money coming in. Consider it a financial safety net.
Do you need to begin required minimum distributions (RMDs) on a retirement account, but would like that money to continue to grow?
While you could choose to put money from your RMDs into a savings account, you are likely to get higher interest rates with an annuity instead. Many annuities accept deposits as low as $100, making them accessible to a wide range of financial situations and a practical option for reinvesting RMD funds in a low-risk vehicle.
Final Thoughts
For military members who already benefit from a pension, TSP, and Social Security, an annuity can serve as an additional layer of guaranteed income and financial security in retirement. As with any financial product, shop around and compare rates and terms from multiple providers before committing. Consider consulting with a fee-only financial planner who is familiar with military benefits to determine whether an annuity makes sense for your situation.
