Choosing the Best Annuity: A Strategic Guide for Retirement Income Planning

In Truth, There is no Single “Best” Annuity

The world of annuities is filled with noise—attention-grabbing bonuses, income “doublers,” and one-size-fits-all claims about which product is best. In truth, there is no single “best” annuity. Selecting a suitable annuity depends on your unique retirement goals, risk tolerance, income needs, and legacy plans.

In this guide, we’ll walk through the five core types of annuities, explain how they align with specific retirement strategies, and provide a framework for identifying which option may best serve your long-term financial security.

Understanding the Five Core Annuity Types

Before considering a specific product, it’s essential to understand the foundational categories:

1. Single Premium Immediate Annuities (SPIAs)
   SPIAs offer guaranteed income starting immediately in exchange for a lump-sum premium. They function similarly to a pension or Social Security payment but require the irrevocable annuitization of your funds, meaning you give up access to the principal in exchange for lifetime payments.
2. Multi-Year Guaranteed Annuities (MYGAs)
   Often compared to a “tax-deferred CD alternative,” MYGAs provide a fixed interest rate over a defined term. They are a strong option for clients seeking stable, predictable growth with no market exposure and minimal complexity.
3. Variable Annuities (VAs)
   Variable annuities offer market participation through subaccounts, with growth potential, but also downside risk. While they may include optional income or death benefit riders, their high fee structure (2–5%) and exposure to market volatility make them less attractive for conservative income planning.
4. Fixed Index Annuities (FIAs)
   FIA’s credit interest is based on a market index (e.g., S&P 500), offering upside potential without market losses. Many FIAs include optional income riders and are structured for long-term retirement income. They are among the most versatile tools for clients seeking both protection and growth.
5. Hybrid Pension Annuities
   These annuities combine a deferred accumulation account with a guaranteed income rider, creating a private pension structure. Unlike SPIAs, they typically preserve access to principal and offer income guarantees without full annuitization.

Two Primary Use Cases: Growth vs. Income

Most clients seeking annuities fall into one of two categories:

1. Safe Growth Without Market Risk
   For those who value principal protection and tax-deferred growth, MYGAs are often the best fit. These annuities typically offer fixed rates above comparable CD or bond yields and allow for straightforward income planning or legacy distribution.
2. Guaranteed Lifetime Income
   Clients seeking a reliable, predictable income in retirement benefit most from Hybrid Pension strategies using Fixed Index Annuities with income riders. These provide lifetime income guarantees with the flexibility to defer withdrawals and maintain access to unused funds.

Demystifying Income Riders

Income riders are often misunderstood but play a central role in retirement income planning. Here are the primary types:

• Flat Lifetime Income Riders – Provide the highest guaranteed payout based on deferral period and account value.
• Guaranteed Growth Riders – Offer income-based growth at a fixed rate (e.g., 6–7% annually) for a fee, ideal for deferring income.
• Inflation-Adjusted Riders – Income increases with inflation indexes (CPI), starting lower but offering protection against rising costs.
• Index Gain-Linked Riders – Tied to market performance; offer potential for income increases without guarantees.
• Nursing Home Doublers – Increase income under specific conditions (e.g., confinement to a care facility); however, they are not substitutes for long-term care insurance.

Our Most Commonly Recommended Structures

For clients focused on income replacement, we frequently recommend:

• Flat, Level Riders – For clients prioritizing maximum monthly income.
• Flat + Daily Value Tracking (DAV) – Income based on the highest daily accumulation value; provides strong participation without caps.
• No-Fee Riders – For clients who prefer to retain more legacy value and are comfortable with market-dependent income variability.

Due Diligence: What We Look For in a Product

When evaluating annuities for our clients, we consider:

• Strong participation rates and no artificial caps or spreads
• Low internal fees (ideally <1.5%)
• Highly rated carriers (A– or better from A.M. Best)
• Consistent rate renewal history and transparent contract terms
• Favorable liquidity provisions and death benefit structures

Cautions and Misconceptions

Certain annuity features may sound appealing but require closer inspection:

• Annuities Bonuses – While a 20–30% “bonus” may be advertised, these are typically added to the income base—not the cash value—and may come with more extended surrender periods and higher fees. Learn More: Are annuity bonuses and roll-ups worth it?
• Nursing Home Doublers – Often pitched as long-term care solutions, but are conditional and may never be activated.
• Variable Annuities – Better suited for accumulation within a structured investment plan—not ideal for income generation or capital preservation.

Conclusion

Annuities can play a decisive role in retirement income planning—but only when aligned with your specific financial objectives. Whether you’re focused on maximizing income, growing your savings without market exposure, or ensuring a legacy for heirs, the right annuity strategy can offer significant peace of mind. If you’re considering an annuity or would like an independent review of an existing contract, we’re here to help.