A pension is one way to finance your retirement years. An annuity is a contract between you and your insurer that allows you to earn income in retirement, according to the Securities and Exchange Commission (SEC).

When you invest in an annuity as a lump sum or by making regular payments over several years, your insurer promises to make regular payments to you that can last throughout your retirement, according to the SEC.

Types Of Annuities

Before deciding on a pension, it is important to understand the different types and how they can affect your financial situation. The main categories of pensions include:

Fixed Pensions:

A fixed annuity offers a certain rate of interest during the accumulation phase or during the period in which its value increases in the annuity. When you are ready to start your cash flow, the value of your money is converted into a constant cash flow which represents a specific payment for a specific period of time eg. B. 20 years, or for an indefinite period, for example, your life or the life of you and your spouse, says the SEC.

Variable Annuities:

With a variable annuity, you transfer the funds accumulated in your annuity to investments of your choice offered by the insurance company, usually mutual funds, according to the SEC. Your retirement income stream depends on the performance of your investments during the accumulation phase of retirement, according to the SEC.

Indexed Pensions:

An indexed annuity gives you performance tied to a major stock index like the Standard & Poor’s 500 Composite Index, according to the SEC. During the accumulation phase, the return on investment reflects the performance of the selected index. However, these annuities usually also offer returns that are not lower than a specified minimum, regardless of the performance of the index.


Annuities can be an attractive option for retirement income for a number of reasons, including:

Tax deferral: You don’t pay tax on your income and annuity investment income until you receive payments, says the Insurance Information Institute (III).

Source of Income for Life: If you choose to have annuity payments with a lifetime contingency, an annuity can provide a source of income for the duration of your retirement, says III.

Death grants: If you die before receiving payments, the person you designate as the beneficiary will receive a specific payment, according to Investor.gov.

Depending on your country of residence, annuities may also offer other benefits, such as: B. Protecting your investment from creditors. For these and other reasons, a pension can provide you and your family with greater financial security in retirement. Check with your insurer or investment professional for the best way to get a pension.