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Annuities as an Asset Class for Fee-Based Advisors l 6 © Envestnet 2022 Annuities are another important tool for funding retirement spending. They are contracts which can be structured to provide a series of payments from an insurance company, either for life or for a fixed period. Lifetime income protections available through annuities can support a retirement income goal through risk pooling and mortality credits. The contract owner is the one who buys and makes decisions about an annuity contract. The annuitant is the person or persons on whose age and survival is used to determine annuity payments. The contract owner is often also the annuitant, but this is not strictly necessary. The beneficiary is the one who will receive any death proceeds from the annuity. A Caveat on Annuities In this discussion, I am mostly making an implicit assumption that the annuity is competitively priced. Fees reflect what is needed to support the guarantees provided by the insurance company and to keep the company profitable. But fees are not excessive such that the value to the consumer is eliminated. Not all annuities are created equally in this regard. Deferred annuities, especially, can be complex financial instruments. That complexity can hide a lack of competitiveness in the pricing of individual products. An annuity that is pitched along with a free dinner presentation is possibly not the type of financial product I have in mind. One should tread carefully. Due diligence and a comparison with other annuity options is necessary to ensure that the product is priced fairly and aligns with the purchaser's expectations. I do not want the "bad" annuities out there to catch a free-ride off of my explanations about "good" annuities. Many types of annuities exist. Our focus will be on immediate and deferred income annuities, deferred variable annuities, and deferred fixed index annuities. In providing an overview of annuity types and how they can be incorporated into retirement planning, this chapter provides a summary of the content from my book, Safety-First Retirement Planning: An Integrated Approach for a Worry-Free Retirement. Readers seeking a deeper dive into these topics may refer to that book for additional details. We now will discuss: Annuities and Risk Pooling The basic logic behind annuities How different types of annuities work How annuities can fit into a retirement income plan 1 2 3