Annuities
Mission Retirement: Annuities are not “leftover money vehicles”
For years, conventional wisdom in retirement planning followed a familiar script:
Fund the 401(k). Max out the IRA. If there’s money left over, maybe consider an annuity.
That hierarchy made sense in a world where retirement planning was almost entirely about accumulation — where market growth, tax deferral, and account flexibility were the primary goals. But retirement itself has changed. Longevity has increased. Pensions have declined. Market volatility has intensified. And clients are no longer asking only “How much can I grow?” — they’re asking, “How do I make this last?”
So, the real question today isn’t whether annuities still “belong” in a portfolio.
It’s where they belong — and what role they are meant to play.
The old rule: Accumulate first, insure later
The traditional funding order — 401(k), IRA, then annuity — was built on three assumptions:
1. Markets would do the heavy lifting
Growth oriented assets were expected to carry most of the retirement burden.
2. Income could be created later
Systematic withdrawals, rules of thumb like the 4% rule, and bond ladders were commonly used to convert assets into income.
3. Insurance was a last resort
Annuities were viewed as expensive, illiquid, and best used only when other options were exhausted.
In an accumulation‑only mindset, that logic holds. But retirement isn’t just accumulation — it’s decumulation under uncertainty.
What’s changed: Retirement is now a risk‑management problem
Modern retirement planning must address risks that traditional portfolios may not be designed to manage on their own:
- Longevity risk (living longer than expected)
- Sequence‑of‑returns risk (poor market performance early in retirement)
- Behavioral risk (clients underspending or reacting emotionally during volatility)
- Income timing risk (needing cash when markets are down)
Annuities can be used to help address some of these risks — not to compete with 401(k)s or IRAs, but to complement them.
Importantly, recent regulatory changes and product innovation have also shifted the conversation. Annuities can now be held within qualified plans, and newer designs often emphasize flexibility, transparency, and clearly defined objectives rather than accumulation alone.
A better question: What job is each dollar doing?
Instead of asking, “Should we fund an annuity after everything else?”
A more useful framework is: What role does each portion of the portfolio need to play?
Growth capital
Focused on long‑term appreciation. Accepts volatility. Typically aligned with equities and market‑based assets.
Liquidity capital
Covers near‑term spending needs. Requires accessibility and stability. Often held in cash or short‑duration instruments.
Income capital
Meant to produce reliable, durable income. Prioritizes predictability over upside.
This is a role annuities may be well positioned to serve.
Seen through this lens, annuities are not “leftover money vehicles.”
They are income‑focused tools.
So … How much of a portfolio belongs in an annuity?
There is no universal percentage — and that’s the point.
Rather than anchoring on a number, consider these guiding principles:
Cover essential expenses with sources of guaranteed income.
Social Security, pensions, and annuity income can be layered together to create a personal paycheck that is designed to provide a more stable source of income.
Use annuities as a fixed‑income complement – not a stock replacement.
For many clients, annuities may replace a portion of fixed income — not growth assets — particularly in a low real‑return bond environment.
Think in phases, not all at once.
Annuities can be deferred, laddered, or introduced gradually to support later retirement needs while preserving early‑retirement flexibility.
Does the old funding order still hold water?
Partially — but it’s incomplete.
Tax‑advantaged accounts like 401(k)s and IRAs remain powerful accumulation tools. But treating annuities as something you only fund after everything else assumes retirement risk can be managed solely through markets.
For many clients, that assumption no longer holds.
A modern approach doesn’t ask, “Have we maxed out every other account yet?”
It asks, “Have we built a portfolio designed to support income with confidence over time and manage market risk?”
When viewed that way, annuities stop being an afterthought—and start becoming part of the architecture.
The bottom line
Annuities are not about beating the market. They are about changing the conversation from assets to outcomes.
The appropriate amount of annuities in a portfolio is driven not by tradition or leftover dollars, but by how much income a client needs to feel comfortable entering retirement.
And in today’s retirement landscape, certainty has become one of the most valuable assets of all.
Annuities are long-term investment vehicles designed to accumulate money on a tax-deferred basis for retirement purposes. Upon retirement, annuities may provide an income stream or a lump sum. If you die during the accumulation or payout phase, your beneficiary may be eligible to receive any remaining Contract Value.
There is no additional tax-deferral benefit for contracts purchased in an IRA or other tax-qualified retirement plans because such retirement plans already have tax-deferred status. An annuity should only be purchased in an IRA or qualified plan if the contract owner values some of the other features of the annuity and is willing to incur any additional costs associated with the annuity.
Products issued by AuguStar Life Insurance Company, member of Constellation Insurance, Inc. family of companies. Product, product features and rider availability vary by state. Guarantees are based on the claims-paying ability of the issuer. Guarantees do not apply to the investment performance of any index. Issuer not licensed to do business in New York.
Early withdrawals may be subject to surrender charges. Withdrawals may be subject to ordinary income tax and, if taken prior to age 59½, an additional 10% federal tax may apply.
NOT A DEPOSIT | NOT FDIC INSURED | NOT GUARANTEED BY ANY BANK | NOT INSURED BY ANY GOVERNMENT AGENCY | MAY LOSE VALUE