The Roman Secret to Retirement Income: Exploring Annuities

Executive Summary

Annuities are an ancient financial tool that has evolved into a modern way to generate retirement income. They can provide guaranteed income, tax advantages, and financial security but also come with trade-offs like fees and limited liquidity.

Annuities can be valuable for those looking to reduce market reliance or create a reliable income stream if used correctly! Understanding how they work and weighing the pros and cons is key to deciding if they belong in your retirement plan.

Want to watch an in-depth exploration of this topic? Check out this video on my YouTube channel, @savvysteward: The Roman Secret to Retirement Income: Exploring Annuities

The Roman Secret to Retirement Income: Exploring Annuities

Annuities have been around since the Roman Empire, proving that the need for steady, reliable income in retirement isn’t new. While the financial world has evolved, the core purpose of annuities remains the same: to provide guaranteed income and financial security.

But how do they work, and are they the right fit for your retirement strategy? What’s the real story? Understanding their benefits, trade-offs, and different types can help you determine whether an annuity deserves a place in your financial plan.

Why do annuities spark such strong opinions?

When it comes to annuities, people tend to fall into two camps: “I love ’em” or “I hate ’em.” Those who love them appreciate the steady, guaranteed income, tax advantages, and protection against market swings. Those who hate them often point to fees, complexity, or lack of flexibility as deal-breakers.

The truth is, annuities aren’t inherently good or bad—they’re just a tool. Whether they fit into your financial plan depends on your goals, risk tolerance, and how much control you want over your money. Understanding what annuities actually do (and don’t do) is the key to deciding if they belong in your retirement strategy.

How do annuities actually work?

An annuity is essentially an agreement with an insurance company. You provide a lump sum or make periodic payments, and in return, the company guarantees a stream of income for a set period—or for life.

One of the biggest advantages annuities offer is tax-deferred growth. Unlike regular investment accounts, where you pay taxes on gains each year, annuity earnings are not taxed until withdrawals begin. This allows the investment to compound more efficiently over time.

There are two main structures:

• Immediate Annuities: Payments start shortly after your investment, providing near-instant income.
• Deferred Annuities: Your money grows tax-deferred for years before you begin taking withdrawals.

What are the different types of annuities?

Not all annuities are the same. The three most common types are:

• Fixed Annuities provide a guaranteed interest rate, offering security similar to a certificate of deposit (CD) but often with better returns. These are ideal for risk-averse investors who want stable income.
• Variable Annuities allow your money to be invested in the stock market, offering higher growth potential but also more risk. Returns fluctuate based on market performance, and these annuities typically have higher fees.
• Indexed Annuities act as a middle ground. They link returns to a stock market index (like the S&P 500) but include downside protection to limit losses during market downturns. However, returns are capped, meaning you won’t fully benefit from strong market growth.

Each type of annuity serves a different purpose, and the right choice depends on how much risk you’re willing to take and what kind of income security you need.

What are the biggest benefits of annuities?

The primary reason people choose annuities is income security. A guaranteed income stream can help reduce reliance on market-based investments, which can be especially valuable during retirement.

Another key advantage is tax-deferred growth, which allows your investment to compound without annual tax consequences. This is particularly useful if you’re in a high-income tax bracket now but expect to be in a lower bracket when you retire.

Annuities can also protect against longevity risk—the possibility of outliving your savings. Some annuities guarantee payments for life, helping to ensure financial stability well into retirement.

What are the most common complaints about annuities?

While annuities offer clear benefits, they aren’t without downsides.

Some of the most common concerns include:

• Fees and Costs: Some annuities, particularly variable annuities, come with high fees, including management fees, mortality and expense charges, and administrative costs. However, lower-cost options do exist, particularly in fixed and indexed annuities.
• Liquidity Issues: Annuities are long-term commitments. Many contracts include surrender charges for early withdrawals, meaning you could face penalties if you need to access your money sooner than expected.
• Lower Growth Potential: Unlike direct stock market investments, annuities often trade high returns for stability and security. If growth is your primary goal, an annuity might not be the best fit.

Despite these drawbacks, annuities can still play a valuable role in a diversified retirement strategy—as long as expectations are realistic and the product aligns with your needs.

How do you decide if an annuity fits your retirement plan?

A Roth conversion involves moving money from a Traditional IRA into a Roth IRA, paying taxes now to Deciding whether to include an annuity in your portfolio starts with asking the right questions:

• Do you need a guaranteed income stream for essential expenses?
• Are you looking for ways to defer taxes on investment gains?
• Are you comfortable with an annuity’s potential fees and withdrawal restrictions?
• How much of your portfolio are you willing to allocate to an annuity?

If steady income and tax-deferred growth sound appealing, an annuity could be a useful addition to your financial plan. However, it’s important to be clear on what you’re giving up in exchange for those benefits.

For those who do choose annuities, the next step is selecting the right type:

• Fixed annuities for stability and security
• Variable annuities for growth potential with market exposure
• Indexed annuities for a mix of security and limited market participation

Annuities aren’t a one-size-fits-all solution, but they can be an effective tool when used in the right circumstances.

Contact Information

Keith Demetriades, CFP®, CKA®, is dedicated to helping individuals, families, and organizations integrate faith-based principles into their financial planning. Oikonomia is a foundational concept in his practice, reflecting his commitment to ethical and values-driven financial management.

Keith welcomes conversations about the topics discussed in this piece and is available to assist in creating a financial plan that aligns with your faith and values. For more information or to start a conversation about your financial future, contact Keith Demetriades at (806) 223-1105 or visit his website at https://www.kingsview.com/advisor/keith-demetriades/.

Disclaimer: The information provided in this blog is for educational purposes only and should not be considered financial advice. Please consult a qualified financial advisor to discuss your specific situation and needs. Past performance does not indicate future results, and all investments carry risks, including potential loss of principal. Any financial product or strategy references are purely illustrative and should not be construed as endorsements or recommendations.