- To reap benefits, annuities require all your savings. "By annuitizing a portion of your savings and combining those payments with Social Security benefits and other sources of retirement income, you can create a customized income strategy," says Walsh. "This approach helps you not only make sure you have the income you need to cover essential expenses during retirement, but it also gives you the flexibility to leave money to your heirs, support charitable efforts and establish pockets of saving for other uses."
- Annuities don’t offer income flexibility. "Virtually all annuities offer an option for a guaranteed period of payment, which means you or your heirs will receive payments for a predetermined number of years no matter what. … The term you choose will impact the amount of your payments," he says.
- Once you start receiving annuity income, you can’t transfer money among the different investment accounts. "While you can’t transfer money out of an annuity and into another investment vehicle, you generally can modify the investments within the annuity if your financial needs change," he says.
Overall, Walsh stresses that annuities primarily help generate a steady income stream during retirement. They are not aimed at wealth accumulation. So they are best understood as part of a well-rounded retirement strategy. Advisors can help clients grasp that message.
"Financial advice and guidance are essential in helping people set their goals for retirement savings and [understand] how they can turn those savings into income for life," he says. "A financial advisor can help individuals evaluate the types of annuities available and select the solution tailored to their needs, risk tolerance and preferences."