Fewer Americans than ever have pension income to look forward to, so we have to rely on ourselves more for our retirement income. One great retirement income source is a fixed annuity, which can deliver reliable cash month after month -- potentially for the rest of your life. Here are some smart annuity moves that can help you get the most bang for your buck.

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I actually offered these three smart annuity moves recently:

  • Choose a fixed annuity, not a variable or indexed one
  • Choose a solid insurer
  • Structure your annuity carefully

After a quick review of what annuities are, I'll offer three more smart annuity moves here.

Annuity basics

An annuity is a contract with an insurance company or financial services company. You generally pay a sum of money (often a large sum), and in return, the company promises to send you regular payments immediately or in the future for the duration of the contract. Many contracts offer payments until the end of your life -- or, if you want, until both you and your spouse have died.

Note that there are many different kinds of annuities -- and that some are much more problematic than others. Here are the main kinds: immediate vs. deferred (paying you immediately vs. starting at some point when you're older), fixed vs. variable (certain payouts vs. payouts tied to the performance of the market or part of the market), and lifetime vs. fixed period (paying until death or paying for a certain span of time). Fixed annuities have fewer drawbacks and plenty of appeal. Here's the kind of income that various people might be able to secure in the form of an immediate fixed annuity in the current economic environment:



Monthly Income

Annual Income Equivalent

65-year-old man




70-year-old man




70-year-old woman




70-year-old couple




75-year-old couple




Data source: immediateannuities.com.

Women can generally expect lower payouts because they tend to live longer than men.

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Consider a deferred annuity

Not only should you give strong consideration to immediate fixed annuities, but you should consider deferred fixed annuities, too -- they can be especially good at helping you avoid running out of money before you run out of breath. Sometimes referred to as longevity insurance, a deferred annuity is a fixed annuity, but one that doesn't start paying immediately. Instead, the insurer agrees to start paying at a specified future point, such as 10 or 15 years later. For example, a 70-year-old man might spend $50,000 for an annuity that will start paying him $850 per month for the rest of his life beginning at age 80, or $1,600 per month beginning at age 85.

If you think you have sufficient income for about 20 years, you might buy a deferred annuity today that will start paying you in 15 or so years. That way, you'll be assured of income later in life, too. Better still, you'll get bigger payouts if they're deferred, because the insurance company gets your money early and can invest it until it has to pay you -- and because it expects to make fewer payments to you, since you'll be older when you start getting paid.

A deferred annuity also offers peace of mind, freeing increasingly elderly recipients from having to manage their own money. The checks will just start coming and keep coming as the recipients are less able to or less interested in keeping up with their investments and making financial decisions.

Image source: Getty Images.

Be careful how you buy your annuity

Another smart annuity move is to not simply buy one from someone who finds you -- perhaps via a cold call or an investment seminar that comes with a free lunch. There are lots of people out there trying to sell annuities, some of whom will engage in misconduct. You're not likely to experience trouble, buy you could, and you don't want to take any unnecessary chances with your hard-earned dollars. So be careful. For starters, find out whether your advisor is held to the "fiduciary" standard, which requires offering advice that is in the client's best interest. Non-fiduciaries can get away with simply offering suitable recommendations that may earn them bigger commissions than better recommendations would. You can also just skip the salesperson and simply find and contact a trusted insurance company or financial services company on your own. You brokerage might even offer annuities.

Image source: Pixabay.

Consider "laddering" your purchases

Finally, keep in mind that annuities are very affected by prevailing interest rates, and offer lower payments when rates are low. Since our current interest rates are near historic lows, it can be worth delaying buying any annuities until rates rise. (The Fed recently hiked rates a bit, and it's very possible, but not certain, that we'll see further increases in the coming years.) If you think that rates are going to rise and you can afford to wait one or a few years before buying an annuity, you may end up with fatter checks each month. After all -- in addition to there possibly being higher interest rates, you'll also be older when you buy, which will result in higher quotes.

If you would rather buy now, though, you can deal with the current low-interest rate environment by using the "laddering" strategy. That's where you divide your total planned annuity purchase into chunks and buy installments over time. For example, you might buy a third of the annuity income you want now, and another third in a few years when rates are likely to be higher, and the last third even later.

Explore alternatives

Fixed annuities might indeed be great retirement income generators for you, but they're not your only option. You can build other kinds of income streams for yourself, too, such as via dividend-paying stocks. That income is far less guaranteed, but spreading your money across a bunch of solid blue chip stocks can reduce a lot of risk. If you have $250,000 in dividend payers that average a 4% yield, you can collect $10,000 per year.

Don't leave your retirement up to chance or up to Social Security. The average Social Security benefit, after all, was recently $1,350 per month, or about $16,000 per year. If you don't expect your Social Security income to be enough, consider other income streams, such as annuities.