What an Annuity Is— And How It Can Secure Your Retirement After Age 60
If you’re over 60, one big retirement question is: Will my money last for life? Social Security and savings help, but market swings, changing rates, and longer lifespans can put income at risk. That’s where an annuity — a life insurance product — can provide guaranteed income you can’t outlive. This guide explains what annuities are, how they work, the main types, benefits, and common myths, plus strategies to use them for steady income after 60. By the end, you’ll know if an annuity belongs in your retirement plan.
Understanding Annuities as a Life Insurance Product
Why do life insurance companies offer annuities?
Annuities and life insurance might seem like opposites at first glance. Life insurance protects your family if you pass away too soon by paying them a death benefit. Annuities, on the other hand, protect you from living too long by ensuring you don’t run out of income.
Both products manage longevity risk — but from opposite angles:
Life insurance: Protects others financially in case you die prematurely.
Annuity: Protects you financially in case you live longer than your savings would normally last.
Insurance companies are uniquely suited to offer annuities because they already have expertise in underwriting risk, managing long-term investments, and pooling resources among large numbers of policyholders.
When you buy an annuity, you’re essentially transferring the risk of outliving your money to the insurance company. In exchange, the company promises to pay you a steady income, sometimes for a fixed period and sometimes for life.
How Annuities Work
At their core, annuities are pretty simple in concept:
You pay the insurance company—either in a lump sum (single premium) or through a series of payments over time.
Your money grows tax-deferred until you start withdrawing income.
The company pays you back in the form of regular income payments — monthly, quarterly, or annually—based on the contract terms.
The amount you receive depends on several factors:
Your age at the time payments begin
The amount of money you put in
Whether you choose payments for a fixed term or for life
Interest rates at the time of purchase
Additional features (like inflation protection or survivor benefits)
Think of an annuity like a personal pension you create for yourself. The older you are when payments start, the higher those payments tend to be—because the insurance company is calculating payouts based on your life expectancy.
The Main Types of Annuities
There are several kinds of annuities, and understanding them is key to making the right choice.
1. Immediate Annuities
Funded with a single lump sum, and start paying you income right away, often within 30 days to a year.
It is a common choice for retirees who want to turn a portion of their savings into guaranteed income now.
2. Deferred Annuities
Allow your money to grow tax-deferred before income payments begin.
Payments might start years later—often at a planned retirement date.
Within deferred annuities, you have three main growth styles:
A. Fixed Annuities
Provide a guaranteed interest rate for a set period.
Low risk, predictable growth.
B. Variable Annuities
Invest in market-based subaccounts (similar to mutual funds).
Potential for higher growth—but also risk of loss.
Often come with optional riders to guarantee a minimum income.
C. Fixed Indexed Annuities (FIAs)
Growth tied to a market index (like the S&P 500) but with downside protection.
You participate in a portion of market gains while avoiding direct losses in down years.
Popular for retirees who want growth potential with less risk.
Key Benefits of Annuities for Retirement After Age 60
If you’re over 60, annuities offer several unique advantages:
1. Guaranteed Income for Life
The biggest selling point—and what makes annuities so valuable — is the guarantee that you’ll keep getting paid even if you live to 95, 100, or beyond.
2. Tax-Deferred Growth
While your money sits in the annuity before you start taking payments, you don’t pay taxes on the growth. This can make your savings grow faster compared to a taxable account.
3. Protection from Market Volatility
Certain annuities (like fixed and indexed annuities) shield your money from market downturns, giving you more stability in retirement.
4. Customization Options
With optional riders, you can tailor an annuity to your needs:
Inflation protection so payments increase over time.
Long-term care riders that boost income if you need nursing care.
Survivor benefits for your spouse.
5. Longevity Risk Management
Annuities directly address the fear of outliving your money—something 60+ retirees are right to be concerned about, given increasing life expectancy.
How to Use an Annuity as a Retirement Income Vehicle After 60
Here’s a practical example:
Let’s say you’re 62 with $400,000 in retirement savings. You don’t want all your money in the stock market, and you like the idea of a predictable income. You decide to take $150,000 of that and purchase a lifetime immediate annuity.
At current rates, you might receive $800–$900 a month for life, no matter how long you live.
That’s on top of Social Security and any other pensions or investments you have.
If you live into your 90s, you may receive far more in income than the original $150,000 you put in.
Some retirees stagger annuities—buying one at 60, another at 65, and another at 70—to take advantage of higher payout rates as they age.
Common Myths About Annuities—Debunked
Myth 1: Annuities have terrible returns.
Reality: Some annuities prioritize safety over high growth — but that’s intentional. Others, like variable annuities, can offer competitive returns.
Myth 2: If I die early, the insurance company keeps my money.
Reality: You can add beneficiaries or refund provisions to ensure unused funds go to loved ones.
Myth 3: Annuities are too complicated.
Reality: While there are many types, the core idea is simple: trade a lump sum for guaranteed income.
Myth 4: They lock up all your money.
Reality: Some annuities have liquidity features allowing partial withdrawals without penalty.
Things to Consider Before Buying
Liquidity Needs: Don’t put all your money in an annuity — keep some in easily accessible accounts.
Inflation: Fixed payments can lose purchasing power over time unless you choose an inflation rider.
Fees: Some annuities (especially variable) can have higher fees. Always review the contract.
Financial Strength of the Insurer: Choose a company with strong ratings (A or higher from AM Best, Moody’s, or Standard & Poor’s).
Why Annuities Are a Great Fit After Age 60
At 60+, you’re in the prime age window for annuities because:
Your retirement horizon is short enough to know your needs.
Payout rates are higher than they would be at younger ages.
You can shift from asset growth to income security.
Longevity risk becomes a more pressing issue—annuities directly solve it.
By allocating part of your portfolio to an annuity, you create a personal pension—something that’s disappearing for most workers today.
Final Thoughts: The Retirement Sleep-Well Factor
In retirement, income is king. An annuity isn’t about chasing big market gains—it’s about ensuring your bills are paid, your lifestyle is maintained, and your money lasts as long as you do.
Think of it as buying peace of mind. While no financial product is perfect for everyone, for many people over 60, an annuity can be the cornerstone of a stable and predictable retirement income plan.
Before deciding, talk with a licensed life insurance agent or financial professional who understands how to structure an annuity contract for your unique needs.
Retirement should be about living, not worrying—and an annuity could help you do exactly that.