4 Ways Annuities Can Support Retirement Income

Key takeaways:

• A retirement annuity is a financial product that can serve a specific role in a retirement income plan.

• An annuity is not the same as a 401(k), IRA or full retirement plan.

• Annuities may help support retirement income by providing principal-protected accumulation or structured payments, thereby adding predictability to help plan for a longer retirement.

• Annuities can provide payments for a set period or for life, depending on the contract.

• A financial professional with annuities expertise can help you understand how an annuity can fit with your broader retirement income plan. 

What is a retirement annuity?

A retirement annuity is a financial product that can offer principal-protected accumulation, as well as structured payments, to help provide predictability to a part of your retirement income. In simple terms, you contribute money to the annuity, and in return, it provides payments to you, either starting soon after purchase or at a future date. These payments can continue for more than one year to the designated recipient, also known as the annuitant.¹

It’s important to note that a retirement annuity is not the same as a 401(k) or IRA. Unlike a full retirement plan, an annuity is just one tool used to help create income in retirement.

How can an annuity fit into a retirement income plan?

Before buying an annuity, it’s important to see “how it fits into your overall retirement plan,” explains Nate DeBoer, vice president and actuary, Health + Annuity Solutions at Mutual of Omaha.

In Mutual of Omaha’s 2025 Decumulation Study, 65% of retirees and 68% of near-retirees said they have or expect to have three or more sources of retirement income.** That means an annuity should be considered alongside other income sources, such as Social Security, 401(k)s, IRAs, savings and investments.

When asking how an annuity can fit into your income plan, consider questions like:

• When would I want payments to begin?

• How much money should stay accessible?

• What income need would this annuity help support?

• What contract terms, fees or tax considerations should I understand first?

The answers can help you decide how an annuity can support a specific income need, like providing more predictability to your retirement income, rather than treating it as a one-size-fits-all retirement solution.

1. Annuities can help create a more predictable retirement paycheck

One of the most practical ways annuities can support retirement income is by helping create a scheduled payment stream. For many retirees, that structure can feel familiar because it may work more like a paycheck than drawing money from an account as needed.

However, many people still want liquid savings, investment accounts and other resources for flexibility. But using a portion of savings for scheduled income can help create more structure in a retirement income plan.

DeBoer notes, “You’re rarely buying an annuity because you started out wanting to buy an annuity. It’s part of an overall retirement strategy.”

That is a helpful way to think about it. The annuity is not the goal. The goal is considering how the annuity can play a role in helping support a retirement income plan that works for your life.

Because annuities are generally long-term contracts, it can be helpful to keep other money accessible for emergencies, travel, family support and unexpected expenses.

2. Annuities can help you plan income around regular expenses

Many retirees want to know that regular expenses will be covered in their retirement income plan.

In fact, in the 2026 Mutual of Omaha Annuities Study, 92% of adults age 45 and older said it would be useful to know, with certainty, that basic living expenses are accounted for as long as they live.* That could include housing, utilities, groceries, insurance premiums, transportation, taxes or health care costs.

An annuity can help support this type of planning by providing predictable payments that align with your everyday expenses.

A simple way to envision it:

For some retirees, matching certain income sources to recurring costs can make the overall retirement income plan easier to understand and manage. For example, Social Security could help with housing, while annuity payments could help support another portion, such as utilities, groceries or healthcare costs.

This approach can make retirement income planning more concrete. Instead of asking whether an annuity is “good,” the better question is: What retirement expense or income need could it help support?

3. Annuities can help plan for a longer retirement

No one knows exactly how long retirement will last.

That uncertainty can make it difficult to decide how much to withdraw from savings each year. It can also make retirees cautious about spending money they worked hard to save.

Some annuities can be structured to provide income for life, depending on the contract and payout option selected. For some people, that can help address the challenge of planning income across an unknown time horizon. And for retirees who are no longer receiving a regular paycheck, scheduled payments may help make monthly income planning feel more manageable.

This can be especially relevant if you are trying to balance:

• Monthly income needs

• Health care costs

• A spouse or partner’s income needs

• Market changes

• The possibility of living longer than expected

An annuity may not solve every retirement planning challenge. But it can help create structure around one important question: How will part of my savings support predictable retirement income over time?

4. Annuities can support spending confidence in retirement

Retirement can require a mindset shift. After decades of saving, it can be difficult to start using those savings for income.

That hesitation is common. Among retirees, 74% said having a clear plan makes them feel comfortable spending in retirement. Among near-retirees, that rose to 78%.**

An annuity can help support spending confidence by giving one portion of savings a clear purpose. For some people, that purpose may be predictable monthly income. Instead of deciding each month how much to withdraw from every account, some retirees find it helpful to know that one part of their savings is pre-determined.

That structure can make it easier to answer questions such as:

• What income can I expect each month?

• Which money should I use first?

• How much should I keep in cash?

• How often should I review my plan?

• What happens if expenses change?

An annuity does not remove the need to manage your retirement income. But it can help simplify one piece of the plan.

Is a retirement annuity a retirement plan?

No, an annuity is not a full retirement plan. An annuity is a financial product, often purchased from an insurance company. A retirement plan is the broader strategy for how you save, invest, spend and manage income throughout retirement. The key is to give each part of your plan a clear job.

Retirement annuity vs. 401(k) or IRA: What’s the difference?

A 401(k) or IRA is a retirement account. An annuity is a contract with an insurance company. They can all be part of retirement planning, but they work differently.

A 401(k) or IRA is often used to save and invest for retirement during your working years. An annuity can be used to help turn part of your savings into income, depending on the type of annuity and the contract terms.

A 401(k), IRA and annuity can serve different roles in a comprehensive retirement income strategy. The key is understanding what each option is meant to do and how it may fit with your income needs, tax situation, access-to-money needs and long-term goals.

What to ask when considering a retirement annuity

Annuities may help support retirement income for some people, but they are long-term financial products with specific costs, rules and trade-offs. Before buying, it’s important to understand how the annuity would work within your broader retirement income plan.

Consider these questions:

• Access to money: How much money do I need to keep accessible? Some annuities limit withdrawals or include surrender charges.

• Costs and fees: What fees, surrender charges or rider costs apply? Optional features may come with added cost.

• Taxes: How would payments or withdrawals be taxed? Withdrawals or payments may be taxable, depending on how the annuity was funded and how money comes out of the contract.²

• Inflation: Could payments keep up with future costs? A payment amount that feels appropriate today may not stretch as far later if costs rise.

• Contract details: How do payments, withdrawals, fees and beneficiary options work? Annuity terms can vary.

• Payout timing: When would payments begin, and how long could they continue? Some annuities begin payments soon, while others begin later.

• Beneficiary options: What happens if I die earlier than expected? Contract terms can affect what happens after death.

• Issuer strength: What is the financial strength of the insurance company?

• Fit: What role would this annuity play in my retirement income plan?

A financial professional with annuity experience can help you compare these questions against your income sources, savings, expenses and long-term goals.

Frequently asked questions (FAQs) about retirement annuities

What is a retirement annuity?

A retirement annuity is an annuity used as part of retirement income planning. It is a financial product typically purchased from an insurance company that can offer principal-protected accumulation, income payments, tax-deferred growth or both, depending on the type of annuity and contract terms.

Does annuity income affect SSDI?

Annuity income is generally different from work earnings. Social Security Disability Insurance, or SSDI, uses work-related rules when evaluating substantial gainful activity. In 2026, Social Security lists substantial gainful activity amounts of $1,690 per month for non-blind individuals and $2,830 for individuals who are blind.³

SSI is different from SSDI and has needs-based income and resource rules. If you receive SSDI, SSI or both, check current SSA guidance before making decisions.

What is better, an annuity, 401(k) or IRA?

One is not better than the other, as a more helpful question is “what do you want the money to do?” A 401(k) or IRA can help you save and invest for retirement, while an annuity can be used for principal-protected accumulation or guaranteed income, depending on the contract. The right fit depends on your income needs, tax situation, liquidity needs and broader retirement plan.

At what age does a retirement annuity pay out?

A retirement annuity can pay out at different ages. The payout age is set by the terms and income option selected. Some income, or immediate, annuities begin payments soon after purchase, while deferred annuities typically begin payments at a future date.

Is an annuity a retirement account?

An annuity is not the same as a retirement account. However, annuities can sometimes be purchased inside certain retirement accounts or used alongside retirement accounts as part of a broader income strategy.

Should I buy an annuity when I retire?

An annuity can be a good option if it supports a clear retirement income goal, such as creating structured payments or adding predictability to part of your plan. It may not fit if you need quick access to the money.

Disclosures:

Annuity guarantees are backed by the claims-paying ability of the issuer.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

Sources:

*Mutual of Omaha Annuities Study. Mutual of Omaha worked with research vendor quantilope to conduct a 5-minute online survey of 400 consumers age 45 and older with a stated household income of $50,000 or more per year. Research was conducted April 22-28, 2026. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

**Mutual of Omaha’s 2025 Decumulation Study. Mutual of Omaha worked with quantilope to conduct an online survey of 496 consumers age 50 and older who were retired or near retirement. Research was conducted in 2025. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

1. Internal Revenue Service. (2025, August 26). Annuities — a brief description. U.S. Department of the Treasury. https://www.irs.gov/retirement-plans/annuities-a-brief-description

2. Internal Revenue Service. (2026, February 24). Topic no. 410, pensions and annuities. U.S. Department of the Treasury. https://www.irs.gov/taxtopics/tc410

3. Social Security Administration. (2026). Substantial gainful activity. https://www.ssa.gov/oact/cola/sga.html