A practical retirement income strategy should be constructed with the intent to generate two or even three decades of sustainable income. Such a strategy should be constructed to help protect assets from the potential impact of inflation, market volatility and interest rates. It may be in your interest to consider an annuity as part of your strategy. Your Lincoln Financial Advisors Corporation representative is prepared to help you make that determination.

What is an annuity?

An annuity is an insurance product designed to provide an ongoing stream of income and may help protect against outliving your savings in retirement. Annuity contract owners may receive periodic income payments for as long as they live in exchange for a premium. Please remember, annuities are typically used as retirement vehicles, not short-term investments.

The two main types of annuities are fixed and variable. Both may offer guaranteed income in retirement but different features and benefits, and each comes with different cost structures and risks. Guarantees are subject to the claims paying ability of the issuer.


Variable annuities are securities products issued by the insurance company and allow you to invest your purchase payments in funds designed for annuities. Some variable annuities are designed to provide you the option to receive a guaranteed lifetime income stream, often at an extra cost and are subject to the claims paying ability of the product issuer. They enable you to participate in stock and bond markets and capture growth potential over time through the performance of underlying investment options. These options offer you the opportunity to diversify among a range of conservative to aggressive investment approaches. Most variable annuities also offer a fixed account option that provides a steady rate of return guaranteed by the issuing insurance company. The issuing company assumes the investment risk for the fixed option. Variable annuities are long-term investment vehicles designed for retirement purposes and are subject to market fluctuation, investment risk and possible loss of principal.

Investors should consider the investment objectives, risks and charges and expenses of the variable annuity and its underlying investment options carefully before investing. The applicable variable annuity prospectus contains this and other important information about the variable annuity and its underlying investment options. Please call 888-868-2583 for a free prospectus. Read it carefully before investing or sending money. Products and features are subject to state availability.


Fixed annuities are designed to provide principal protection, predictable returns and a potential for lifetime income guaranteed by the issuing insurance company. There are two general categories of fixed annuities:

  • Traditional fixed annuities offer tax-deferred earnings with an initial interest rate guaranteed for a set number of years. Upon renewal, interest rates may be subject to change. You have access to your cash values, if any, may be subject to surrender charges during the contracts early years and the ability to create a lifetime income stream as well as a death benefit for loved ones. 
  • Fixed indexed annuities are long-term retirement savings vehicles that offer tax-deferred growth. Your purchase payments are allocated between different interest crediting methods. Interest-crediting features may include either a fixed interest rate crediting method or a variable interest rate crediting strategy tied to the performance of an outside investment index. You choose how to allocate your purchase payments between the different interest crediting methods. You also may have access to your account values subject to surrender charges during the contracts early years, the ability to create a lifetime income stream or an optional lifetime withdrawal benefit, as well as a death benefit.

Deferred or immediate payments

Both fixed and variable annuities can be either deferred or immediate. A deferred annuity allows you to make purchase payments over a period of time; then you receive a series of income payments for a specified period of time, your lifetime or the lifetimes of you and your spouse. With an immediate annuity, you make a single purchase payment and begin receiving income payments immediately. As with a deferred annuity, these payments may be for a specified period, your lifetime or the lifetimes of you and your spouse. 

Before making any decisions about what is right for you, please work with a financial professional.

Tax advantages of annuities 

Any investment income growth inside an annuity is tax-deferred. In other words, you pay premiums in nondeductible, after-tax dollars that accumulate on a tax-deferred basis. Tax deferral means you pay no federal, state or local taxes on any investment gains until you begin to withdraw money. When withdrawn, earnings are taxed as ordinary income. Additionally, transfers between investment options in variable annuities are not taxable events. This provides you with significant flexibility in your retirement strategy.

Since an annuity is intended as a retirement income vehicle, there is a 10% federal tax penalty for withdrawals made before age 59½. There also may be surrender charges and tax consequences associated with lump-sum withdrawals, which may reduce annuity contract benefits and values. 

Other features

Annuities may offer benefits in addition to generating tax-deferred retirement income, such as:

  • No annual contribution limit
  • No initial sales charge
  • Ability to diversify
  • Potential investment growth
  • Death benefit protection, subject to the claims-paying ability of the issuing insurance company
  • Systematic investment programs
  • Guaranteed lifetime income options
  • Optional riders, or features, for an additional cost

Annuity benefits vary from company to company. Your Lincoln Financial Advisors representative can provide prospectuses detailing the contract limitations, fees and charges associated with variable annuities, which include, but are not limited to, mortality and expense risk charges, sales charges, administrative fees, and charges for optional benefits. Be sure to read the prospectus carefully before investing or sending money. Finally, an annuity is only one of the products your Lincoln Financial Advisors representative offers to help you develop a retirement planning strategy.