Annuities

Annuities: Creating Guaranteed Income for Life

As fewer employers offer traditional pensions and retirees live longer in retirement, American workers today face significant challenges preparing for retirement. Responsibility for building and managing savings has shifted from the employer to the employee. Beyond Social Security and traditional pensions, the only way to create a guaranteed, lifelong income stream in retirement is through an annuity.

An annuity is an insurance contract that offers an efficient solution to what otherwise could be an overwhelming asset management task: creating a steady paycheck in retirement that will never run out. Annuities help people save for retirement during their working years, and turn savings into an income stream guaranteed to last a lifetime.

This lifetime income option through annuitization allows retirees (and their spouses) to maximize retirement income without having to worry about payments stopping while they are alive.

The recent economic crisis has highlighted and enhanced the long-term value and guarantees that annuities provide. In fact, despite the market turmoil, a survey by the Committee of Annuity Insurers shows that 79 percent of annuity owners say that annuities are a safe and secure way to save for retirement and that annuities make them feel secure in times of financial uncertainty.

Individual annuity owners received $45 billion in benefits from their annuities in 2010. In total, Americans received $99 billion from all types of annuities in that same year.

Annuities also play an important role in retirement plans offered at the workplace. Employers who sponsor defined benefit plans often partner with life insurers to provide retirees with a paycheck for life through an annuity. Similarly, employers who sponsor defined contribution plans like 401(k)s may partner with life insurers to offer workers an annuity option to turn a portion of their retirement account balance into an income stream for life at retirement.