How to Balance Retirement Growth and Security

Retirement planning often feels like walking a tightrope. You need to grow your savings, but can’t get too risky with investments that could put your earnings in jeopardy. Market ups and downs, inflation, and the risk of outliving your savings all add to the complexity.

Annuities for retirement can be a powerful tool to strike the right balance. with options that offer both growth potential and guaranteed income. Read on to learn how to balance retirement growth and security with annuities as part of a safe retirement investment strategy.

The Retirement Balancing Act

Planning for retirement isn’t a one-size-fits-all process—it depends on when you start saving and the financial realities your generation faces. For younger generations (for Millennials and Gen Z), the advice is often clear: start early and save consistently. For example, if you’re in your 20s, it’s recommended to put 10% to 20% of your income into retirement savings annually.

For those closer to retirement, such as Baby Boomers and now Gen X, years of saving should have you closer to what you need for a good retirement income. But even with smart saving, there can be challenges leading up to retirement. Political, economic, or you own personal circumstances can impact how ready you are for retirement. Here’s a look at the common challenges retirees face:

• Market Volatility: If you have higher proportions of your money in the stock market and they experience sudden losses, this can put your retirement at risk.
• Outliving Savings: With people living longer than ever, there’s always a concern about running out of money.
• Cost of Living: Rates for cost of living and covering medical expenses is on the rise, which means your money may not go as far as it used to.
• Lack of Guaranteed Income: Many retirees no longer have pensions, leaving them reliant on market-dependent investments for income.
• Issues with Social Security: Social Security Trust Funds projected to be unable to pay out full benefits beginning in 2035 and could affect Gen X retirees.

How Annuities Can Secure Retirement While Growing Savings

When you’re planning for the unexpected, stable ways to grow savings is essential. That’s why annuities can play a crucial role in safe retirement investment strategies. Annuities have unique benefits that can help you weather common challenges in retirement. That said, there multiple types of annuities designed for different growth strategies. The most common types of annuities include:

Fixed Annuities

The most straightforward and reliable option, providing guaranteed returns at a set interest rate. Fixed annuities are a predictable way to grow your money, are tax-deferred, and typically come in three-, five-, or seven-year terms. Fixed annuities are best for risk-averse retirees since they have no market exposure affecting their growth. That means you have steady, guaranteed income for essential expenses like housing, healthcare, and daily living costs.

Variable Annuities

Variable annuities offer the potential for higher returns but come with greater risk. These annuities invest your money into underlying funds, such as mutual funds, so your income depends on the performance of these investments. While these do have the potential to earn more, the unpredictability of variable annuities can pose challenges, especially for those relying on consistent income.

Fixed Indexed Annuities

Finally, fixed indexed annuities fall somewhere in between, combining growth potential with protection. These annuities are tied to the performance of a stock market index, such as the S&P 500, but also include a guaranteed minimum return to protect your principal. For retirees who want some exposure to market growth but still value financial security, could strike the right balance. However, they can be complex and often their guaranteed minimum rate is lower than you’ll find with a fixed annuity.

Here’s a quick comparison of how these annuities grow your money:

Best Strategies for Secure Retirement Growth with Annuities

Need more details on how annuities can work for you? Annuities to your retirement plan is a smart way to secure retirement savings while allowing for growth. Here’s how:

• Structure Your Portfolio: Consider using annuities along with other savings mechanisms for a diverse portfolio. For example, combine a stable fixed annuity for guaranteed income with other assets like fixed income investments and equities.
• Get Tax Advantages: Earnings on some annuities, like fixed annuities, grow tax-deferred meaning you won’t pay taxes until you withdraw the money. This allows your savings to compound more effectively over time.
• Know Withdrawal Rules: Annuities provide flexible withdrawal options. However, withdrawals before age 59½ may incur penalties, so plan carefully.
• Understand Surrender Charges: Annuities often include surrender charges if you withdraw too early, so be sure to align your annuity term with your timeline for accessing the funds.

Is an Annuity Right for You?

Annuities can be a great fit for retirees looking for ways to guarantee consistent income throughout their life. But before purchasing an annuity, consider the following:

• Goals: Are you focused on generating steady income or growing your savings?
• Risk Tolerance: Do you prefer stability, or are you comfortable with market risks?
• Income Needs: Do you need guaranteed income to cover essential expenses, or are you supplementing other retirement income sources?

And if you’re still not sure, reach out for professional guidance to help decide if annuities are right for you. A financial advisor can help tailor a strategy to your specific needs and goals.

Take the Next Step Toward Securing Your Retirement

Learning how to balance retirement growth and security doesn’t have to be stressful. With annuities for retirement, you can protect your savings and make sure you reach your retirement goals.

Ready to get started? Canvas offers a range of annuities designed to fit different needs, from stability-first to growth-focused options. Read more about our annuities, like the Flex Fund and Future Fund, or contact our team to create a personalized plan today.

Your Annuity FAQs Answered

Are annuities only good for retirees?

Fixed annuities are a safe way to grow funds designated for retirement. If you choose to withdraw those funds before the age of 59 ½, the IRS (Internal Revenue Service) may assess a 10% federal tax on your earnings (not your original investment). Because of the great rates and tax deferral you get when you purchase a Canvas Annuity, even with that tax, you may end up better than you would have if you had kept your money in a savings account or a bank CD with a much lower crediting rate.

How safe are annuities? 

Annuities can be a safe investment option for retirees. They are insurance products designed to provide guaranteed income, with fixed annuities offering the most stability. At Canvas, we offer simple, straightforward, and people-focused fixed MYGA annuities backed by the Puritan Life Insurance Company of America, so your funds grow at a guaranteed rate.

Do I have to pay taxes on my earnings?

The funds in your annuity will grow tax deferred as long as they remain in your annuity. If you have funded your annuity with money you have already paid taxes on (non-qualified), the portion of any withdrawal determined to represent gains is taxed as ordinary income. If you have funded your annuity with pre-tax dollars (qualified), the entire amount of any withdrawals will be taxed as ordinary income.

What guarantees come with my annuity?

An annuity is an insurance product that is guaranteed by the claims paying ability of the carrier that issues the policy. Insurance companies are members of the state insurance guarantee associations in each state where they do business. Each state insurance guarantee association protects consumers in the unlikely event that their insurance company fails and defaults on their obligations to their consumers (limits vary per state). The Canvas Annuity is issued by Puritan Life. Puritan Life is rated by AM Best, a third-party rating agency. Puritan Life has an AM Best rating of B++.