What Is an Annuity? A Guide to Fixed Annuities and Retirement Income
The following educational materials are intended for informational purposes only and are not intended to constitute personalized financial advice.
Are you hearing the word ‘annuity’ more than you used to?
Retirement savers are increasingly turning to annuities as a solution for retirement planning. Annuities are becoming more popular as people look to manage risk or to generate dependable income streams to maintain their lifestyle in retirement. Annuities are unique in their ability to deliver certain benefits not available in other financial solutions.
Ceres Life is an innovative provider of annuities, working with our partners to make annuities more widely available, easier to purchase, and better understood. Here are the basics:
What Is an Annuity?
An annuity is a written contract between you and a life insurance company. You make a payment, known as a premium, and in return the insurer credits interest to your annuity’s accumulation value until a time when you decide to convert your contract to a series of guaranteed payments. Annuities—particularly fixed annuities—are designed to support those goals by providing steady growth and future income options as part of a long-term financial plan. They offer benefits that can help support your retirement strategy with stability, clarity, and predictable income.
Annuities are commonly used to:
Grow savings with predictable interest
Help protect against market volatility
Support retirement income planning
Accumulation and Income Phases
The two phases of an annuity:
Accumulation Phase
During this phase, you fund the annuity and your value grows, tax-deferred —either at a fixed rate or a rate calculated in reference to an external market index, subject to certain limits.
Income or Payout Phase
When you’re ready, the annuity can be used to provide income based on the options selected in your contract. Certain annuities can be structured to provide income for a set period or for your lifetime. You may also cash out the full accumulation value of your annuity once the surrender charge period has concluded.
Understanding these two distinct phases on the retirement journey, helps show how an annuity moves from helping you with saving to providing income and supporting you right when you need it most.
Please keep in mind that annuities may include surrender charges, withdrawal limitations, and tax considerations. Access to funds and income features depend upon the terms of the contract.
How Fixed Annuities Work
Fixed annuities offer a straightforward approach to retirement savings. During the accumulation period, your money grows at a declared interest rate set by the insurance company, helping provide consistency and predictability.
Some fixed annuities may also offer interest crediting approaches that, subject to specified limits, are linked to the upward movement of market indices, allowing for potential growth opportunities without direct market participation.
Why People Use Annuities in Retirement Planning
Annuities help manage longevity risk and market risk, and support income predictability.
Life insurance protects others after you’re gone. Annuities are designed to help protect you by supporting income stability during retirement.
Why choose an annuity?
Many people buy annuities to provide a steady stream of income in retirement. It’s income that doesn’t swing with the markets or disappear in a bad year. An annuity offers consistency. It can help you cover the essentials and enjoy the retirement you’ve planned.
Others buy an annuity to protect their money from market risk and to allow it to grow tax-deferred. Annuities, like the multi-year guaranteed and fixed indexed annuities offered by Ceres Life, deliver tax-deferred growth for your savings. Growth on your savings is generally tax-deferred until you make withdrawals from your annuity contract’s accumulation value.
Understanding Annuities with Ceres Life
At Ceres Life, our goal is to help financial professionals and clients understand annuities with clarity and confidence. We support our partners and customers every step of the way. We’ve reimagined annuities and the process of obtaining an annuity to be simpler, faster, and more human, creating a solution that is aligned with the retirement you deserve.
Ceres believes that retirement planning should feel empowering, not confusing. We’ve designed annuities that are easy-to-understand and a process to support them that is seamless, AI-driven, and efficient. Our best-in-class, U.S.-based Ceres Client Care team, available via extended hours, are here to support your annuity and retirement needs.