When people hear the word annuity, it often triggers a strong reaction—and not always a positive one. But like many financial tools, annuities have evolved. And if you’ve been hearing mixed messages about whether annuities are a smart move for your retirement, you’re not alone.
I recently sat down with financial strategist Pete Catalano to talk all things annuities—from the old-school “1.0” models to the flexible, benefit-packed versions available today. Here’s a breakdown of what we covered and what you need to know before making a decision.
💡 What Is an Annuity Anyway?
At its core, an annuity is simply a stream of payments—either going into a savings product (accumulation phase) or coming out as income (distribution phase). Traditionally sold by insurance companies, annuities were designed to ensure you never outlive your money. But early versions came with drawbacks…
🔄 Annuity 1.0 – The Old School
In the early days, annuities worked like this:
- You gave the insurance company a lump sum.
- They guaranteed you monthly payments for life.
- If you passed away early, the remaining money reverted to the insurance company—leaving nothing for your heirs.
Not surprisingly, many people hated this. They didn’t want to “lose” their money if they died early, and they wanted more control. So insurance companies adapted…
🚀 Enter Annuity 2.0 & 3.0 – Customization + Protection
Thanks to consumer demand and better actuarial data, modern annuities now include:
- Guaranteed income for life
- Death benefits so remaining funds go to your beneficiaries
- Long-term care riders to cover nursing home or in-home care
- Indexed growth—so your money participates in market gains but can’t go below 0% in a downturn
That’s a big shift from the rigid, fixed-rate annuities of the past.
📉 What About Fees and Penalties?
Yes, most annuities pay commissions, and that often comes with deferred sales charges (aka surrender fees). For example:
- If you invest $500,000 into a 10-year annuity and withdraw early, you might pay a penalty of 5–10% depending on how far in you are.
- That’s why it’s crucial to understand your exit options and make sure the annuity fits your long-term plan.
💸 The Tax Side: Understanding the Exclusion Ratio
With non-qualified annuities (funded with after-tax dollars), you’re only taxed on the gains when you withdraw. The IRS uses something called the exclusion ratio to figure this out.
Example:
You put in $50,000 and it grows to $100,000.
If you withdraw $1,000/month, only 50% of that is taxable. The rest is a return of your original investment.
🔥 Annuities vs. Pensions – What’s the Better Move?
Pete and I talked through real-life client examples—people retiring from places like Chevron, HP, and local fire departments. When deciding whether to take the company pension or roll it into a private annuity, the private route often came out ahead. Why?
✅ Potentially higher returns
✅ More control over your money
✅ Inheritance planning built-in
We can run the numbers and show how a well-structured annuity might give you (and your spouse) more income and more legacy protection.
🎯 Final Thoughts: Do Annuities Have a Place?
We think they do.
Not every annuity fits every person, but the right annuity can be a powerful part of your retirement strategy—especially when designed to meet your specific goals.
👉 Ready to Explore Your Options?
Let’s take a look at your current retirement plan, pension options, or investment portfolio. We’ll help you decide if an annuity makes sense—or if there’s a better strategy to meet your income, tax, and legacy goals.
You can watch the full Video Here:
https://youtu.be/EvKkQ450TnM
Check out Pete Catalano’s Website and YouTube if you want to learn more!
W@ https://www.pcatalano.com/peter-catalano/
Y@ https://www.youtube.com/@financialadvisor-PCatalano
📅 Book a free discovery call with me here:
https://app.acuityscheduling.com/schedule.php?owner=14522012&appointmentType=62563958