Structured Annuities

Shawn Plummer

CEO, The Annuity Expert

Structured annuities are one of those financial terms that you’ve likely heard but may not fully understand. They are frequently mentioned in retirement planning, and it’s easy to see why: they provide an enticing blend of financial stability, predictable income, and peace of mind. But what exactly is a structured annuity? How can it benefit you, and where do its potential pitfalls lie? This comprehensive guide will dissect structured annuities in an approachable and easily understandable way, ensuring you have the knowledge to make informed financial decisions.

Understanding Structured Annuities

A structured annuity is a contract between an individual and an insurance company, where the individual makes a lump sum payment or a series of payments. In return, the insurance company promises to make periodic payments to the individual at some point in the future. The concept is simple: you provide capital upfront, and the insurance company guarantees you a steady income stream later, often during retirement.

Example: You’ve been diligently saving over the years and have accumulated a substantial nest egg. You decide to purchase a structured annuity from an insurance company with a portion of your savings. This is the beginning of your relationship with the structured annuity. From this point, you’ll have a guaranteed income stream at a future date, typically upon retirement.

Structured Annuities

The Unique Benefits of Structured Annuities

With structured annuities, you’re not just putting money away but investing in your future. The primary benefit is transforming a lump sum or a series of contributions into a reliable income stream. It can serve as a safety net, supplementing other income sources like Social Security or pensions, and help mitigate the risk of outliving your savings.

Example: Imagine Sarah, a 50-year-old who is planning for her retirement. She opts for a structured annuity with a portion of her savings. At age 65, she starts receiving a steady monthly income from the annuity. This income supplements her other income sources and provides financial security, ensuring she can maintain her desired lifestyle throughout retirement.

What Is A Structured Annuity

Key Considerations When Choosing a Structured Annuity

As with any financial product, structured annuities have pros and cons, and it’s essential to consider your unique circumstances and financial goals.

  • Fees and Expenses: Structured annuities can come with high fees and surrender charges, potentially affecting your returns.
  • Access to Funds: Annuities are designed to provide long-term income so that early withdrawals can trigger substantial penalties.
  • Inflation Risk: The fixed income from structured annuities may not keep pace with inflation over time, potentially eroding the actual value of your income stream.

Structured Annuities in Practice: A Real-Life Example

Let’s consider John, who plans to retire in 10 years. He chooses a structured annuity to provide a steady income during his golden years. John pays a lump sum of $200,000 into the annuity now and, upon retirement, starts receiving $1,200 per month for the rest of his life. His income remains stable despite market fluctuations, offering him a predictable financial future.

Structured Annuities

Next Steps

Structured annuities can provide a solid financial foundation for your future, offering a reliable income source during retirement. But like any financial instrument, they’re not one-size-fits-all. Carefully consider your individual needs, goals, and risk tolerance before deciding. Ultimately, a structured annuity can serve as a powerful tool in your financial planning arsenal, providing the reassurance of predictable income in a world often marked by economic uncertainty.

Structured Annuity

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What fees are associated with structured annuities?

Structured annuities come with various fees, such as administrative fees, surrender charges, mortality and expense risk charges, and management fees. The fees associated with any mainly structured annuity will depend on your chosen product and the provider offering it. Understanding all these fees before investing in a structured annuity is essential.

Do structured annuities pay for the rest of your life?

Yes, some structured annuities do offer lifetime payments. These are lifetime income annuities and will pay you a regular income for the rest of your life. However, not all structured annuities have this option, so you must check with your chosen provider before making an investment decision.

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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