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A fresh look at annuities: Annuities for savings. Annuities for income.

May 20, 2025 | 5 min read

Annuities are financial solutions designed to help meet America’s expanding retirement needs. But did you know that annuities can serve two different financial purposes? Savings and income.¹

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Annuities for savings

Annuities are long-term insurance products issued by insurance companies. For people looking to accumulate and grow their savings, annuities offer a number of valuable benefits, including the benefit of tax deferral.² With tax deferral, there are no current taxes on any interest, dividends or capital gains earned until withdrawals from the annuity begin.³ This allows taxes to be paid later, when people are retired and often in a lower tax bracket and can help savings grow faster. In addition, many annuities typically include a death benefit.

A wide variety of annuities for growth

The way an annuity grows depends on the type purchased. Annuities come in a variety of different types to help address different goals and risk tolerance levels. Here’s a high-level overview:

Fixed annuity: Provides a guaranteed fixed rate of return on savings for a specific period of time. With a fixed annuity, there is no market risk. This type of annuity is often compared with a certificate of deposit (CD). Of course, a fixed annuity is issued by an insurance company, not a bank, so it isn’t insured by the Federal Deposit Insurance Corporation (FDIC). With an annuity, guarantees are backed by the claims-paying ability of the issuing insurance company.
Index annuity: Provides growth potential based in part on the performance of a market index, such as the S&P 500^® Index. Plus, with an index annuity, principal is protected against market downturns. If the index goes down, the annuity does not lose value—instead, indexed-linked interest simply won’t be credited for that year.⁴
Registered index-linked annuity (RILA): Provides growth potential based in part on the performance of a market index, such as the S&P 500^® Index, with potentially greater upside opportunity than an index annuity. Unlike an index annuity, a RILA does not offer principal protection. However, a RILA can help manage downside risk through features such as a “buffer,” which absorbs certain levels of loss (for example, 10% or 20%) in down markets. Of course, it’s important to know that losses are only limited by the amount of the buffer.^4,5
Variable annuity: Provides growth potential with market participation through professionally managed investment portfolios generally featuring stocks, bonds, or a combination of investments. While variable annuities can offer greater growth potential than other types of annuities, there is no principal protection or targeted level of downside protection, so there is also a greater level of market risk and potential for investment loss.

Annuities for income

It’s important to understand that all annuities offer the opportunity for income—even those initially purchased for savings—through annuity payment options and a process called “annuitization.” That means all of the products in the “annuities for savings” section can also be used for income-generating purposes:

Fixed annuity
Index annuity
Registered index-linked annuity (RILA)
Variable annuity

In addition, there are two types of annuities designed strictly for income:

Immediate annuity
Deferred income annuity

With both of these, the initial lump-sum premium used to purchase the annuity is converted into a series of periodic payments through annuitization for income right away (immediate) or income down the road (deferred).

So what is annuitization?

Annuitization is a feature available with all types of annuities. With annuitization, the annuity’s value is converted into a series of periodic income payments to the annuity owner.

The available annuity payment options typically include:

Life annuity option: Provides lifetime income for as long as the annuitant⁶ is living.
Life annuity with period certain option: Provides lifetime income for as long as the annuitant is living, and if the annuitant dies before the period certain ends (for example, during first 10 years or 20 years), payments continue to the beneficiary for the remaining years.
Joint and survivor life annuity option: Provides lifetime income for as long as one of two people (typically spouses) is living. After the first death, payments may continue to the survivor.
Period certain annuity option: Provides income for a fixed period of time—for example, 10, 15 or 20 years.

Once the annuitization payout phase begins, the annuity owner no longer has access to the account value; rather, the value has been exchanged for the guaranteed income payments. In addition, the contract’s death benefit no longer applies.⁷

This process of annuitization is typically irrevocable. However, income rates are generally higher with annuitization than with other more flexible income options, such as a Guaranteed Living Benefit, which we discuss next.

Guaranteed Living Benefits—a more flexible way to generate lifetime income from an annuity

Many people want to retain access to their account value—even after they begin generating income from their annuity. That’s why many annuities now offer Guaranteed Living Benefits as an alternative to annuitization.

A Guaranteed Living Benefit is simply an income-related feature of an annuity. It may be automatically included or optional. Additional fees, age restrictions and other limitations apply to Guaranteed Living Benefits.

With a Guaranteed Living Benefit, the annuity owner can take ongoing withdrawals from their account for lifetime income. As withdrawals are taken, the account’s balance decreases accordingly. What makes the Guaranteed Living Benefit especially valuable is that even if the account value is reduced to zero due to ongoing withdrawals, lifetime income payments will continue to be paid by the insurance company for as long as the annuity owner lives.^8,9

Annuities that often offer Guaranteed Living Benefits:

Fixed annuities
Index annuities
Registered index-linked annuities (RILA)
Variable annuities

Of course, not all annuities offer Guaranteed Living Benefits.

An annuity with a Guaranteed Living Benefit can be appealing for people who may not be covered by a traditional defined benefit pension plan and want to create a pension-like stream of lifetime income that can’t be outlived.

More information about the two ways annuities can generate lifetime income—via a Guaranteed Living Benefit feature or by annuitizing—can be found here.

Conclusion

Whether an individual is looking to build retirement savings, generate lifetime income for retirement, or achieve both of these objectives over time, today’s annuities are worth a fresh look. A financial professional can play a key role in helping to assess if an annuity may make sense for a portion of one’s retirement portfolio, and if so, which type of annuity should be considered based on their goals, objectives and tolerance for risk.

To learn more, ask your financial professional about annuities.

¹Guarantees are backed by the claims-paying ability of the issuing insurance company.

²Keep in mind, for retirement accounts (such as IRAs), an annuity provides no additional tax-deferred benefit beyond that provided by the retirement account itself.

³Withdrawals of taxable amounts are subject to ordinary income tax and if taken prior to age 59½, an additional 10% federal tax may apply.

⁴Index annuities and registered index-linked annuities are not a direct investment in the stock market.

⁵With a registered index-linked annuity, there’s the potential for loss and such losses could be significant in a severe down market. These types of annuities can offer a variety of different growth and protection features. These features can vary from product to product.

⁶The annuitant is the person on whose life income payments are based in the annuitization/payout phase.

⁷Note, with annuitization, if applicable, a beneficiary may receive certain remaining annuity income payments guaranteed under the annuity income payment option.

⁸Please see the contract or prospectus for complete details about the annuity and Guaranteed Living Benefit you may be considering.

⁹Withdrawals must be taken within certain parameters to realize the benefits of a Guaranteed Living Benefit. If withdrawals exceed the defined parameters of the Guaranteed Living Benefit, it will reduce the amount that can be withdrawn in the future and, depending on the size of the withdrawal, potentially eliminate the lifetime income guarantee. Joint Life income options for spouses are also typically available. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply. Guarantees are backed by the claims-paying ability of the issuing insurance company.

This material is general in nature, was developed for educational use only, and is not intended to provide financial, legal, fiduciary, accounting or tax advice, nor is it intended to make any recommendations. Applicable laws and regulations are complex and subject to change. Please consult with your financial professional regarding your situation. For legal, accounting or tax advice consult the appropriate professional.

Annuities are long-term insurance products designed for retirement. In the growth stage, they can help build assets on a tax-deferred basis. In the income stage, they can provide protected lifetime income through standard or optional features. A contract can be annuitized in order to receive lifetime income payments for no additional cost if a lifetime annuity option is chosen. Income protection features such as Guaranteed Living Benefits may be optional or standard. Additional fees, age restrictions, withdrawal parameters, and other limitations apply. With variable annuities, certain investment requirements also apply. Early withdrawals may be subject to withdrawal charges and a Market Value Adjustment (MVA) may also apply to certain fixed annuities and index annuities. Partial withdrawals may reduce benefits available under the contract, as well as the amount available upon a full surrender. Withdrawals of taxable amounts are subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply. An investment in a variable annuity or registered index-linked annuity involves investment risk, including the possible loss of principal. The contract, when surrendered, may be worth more or less than the total amount invested. Keep in mind, for retirement accounts (such as IRAs), an annuity provides no additional tax-deferred benefit beyond that provided by the retirement account itself. However, annuities offer other features and benefits that may be valuable.

Variable annuities are sold by prospectus only. The prospectuses for each underlying fund as well as the variable annuity contract describe the investment objectives, risks, fees, charges, expenses, and other information for each, respectively. The statutory and summary prospectuses for each underlying fund and the variable annuity contract should be considered carefully before investing. Please contact your insurance and securities licensed financial professional or call 1-800-445-7862 to obtain any of those prospectuses, which should be read carefully before investing.

Registered index-linked annuities are sold by prospectus only. The prospectus contains the investment objectives, risks, fees, charges, expenses and other information regarding the contract, which should be considered carefully before investing. A prospectus and summary prospectus if available may be obtained by calling 1-877-445-1262. Investors should read the prospectus carefully before investing.

All contract and optional benefit guarantees, including any fixed account crediting rates or annuity rates, are backed by the claims-paying ability of the issuing insurance company. They are not obligations of or backed by the distributor, insurance agency or any affiliates of those entities and none makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company. Products and features may vary by state and may not be available in all states. The purchase of an annuity is not required for, and is not a term of, the provision of any banking service or activity.

Annuity contracts issued by American General Life Insurance Company (AGL), Houston, TX except in New York, where issued by The United States Life Insurance Company in the City of New York (US Life). Certain annuities are issued by The Variable Annuity Life Insurance Company (VALIC), Houston, TX. Variable annuities and registered index-linked annuities are distributed by Corebridge Capital Services, Inc. (CCS), member FINRA, 21650 Oxnard Street, Suite 750, Woodland Hills, CA 91367- 4997, 1-800-445-7862. Issuing companies AGL, US Life and VALIC are responsible for financial obligations of insurance products. AGL does not solicit, issue or deliver policies or contracts in the state of New York. Products and services may not be available in all states and product features may vary by state. Please refer to the contract.

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