How to Weigh Annuities in a Retirement Income Plan

Key takeaways:

• An annuity is one tool that fits within a broader retirement income plan.

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

• Pros include more predictable income, tax-deferred growth and reduced exposure to market swings.

• A financial professional with annuities expertise can help you compare options and understand how an annuity fits within your full retirement picture.

What role can annuities play in retirement income?

Retirement income often comes from multiple sources. In Mutual of Omaha’s 2025 Decumulation study, 65% of retired consumers and 68% of near-retirees expected to have three or more streams of income during retirement.*

That’s where annuities enter the conversation. They’re not meant to replace every other income source. Instead, an annuity helps create structure for one portion of your retirement income plan with principal-protected accumulation and structured payments.

Nate DeBoer, VP and actuary, Health + Annuity Solutions, recommends starting with the full retirement income picture: “Add up all of your income sources, whether that’s a pension, Social Security, or the interest income you have from your investments, and look at whether there’s a gap that an annuity could fill.”

Why annuities play a part in retirement income planning

During your working years, the focus is often on accumulation: saving, investing and building retirement assets. However, as Keith Lo, annuity product director at Mutual of Omaha explains, “as you approach retirement, and then as you actually retire, having a reliable income stream becomes more important.” The focus shifts to decumulation, or deciding how to use your savings to create retirement income.

Many retirees and near-retirees prefer to pace their spending so their resources last. That includes 87% of retirees and 76% of near-retirees.*

This is where annuities become part of the planning discussion. They can help people create a more reliable payment stream for part of their retirement savings.

Annuities pros and cons for retirement income planning

Annuities offer benefits for retirement income plans, but there are a few trade-offs to consider. The right question is not “What are the pros and cons of annuities?” it’s “Which of these pros and cons matter most for my retirement income needs?”

5 annuity advantages

The benefits of an annuity should be viewed through the role it can play in your overall retirement income plan. For some people, the appeal is more reliable income. For others, it may be tax-deferred growth or reduced exposure to market swings for part of your savings.

1. Structured income

Some annuities can help turn part of retirement savings into a more structured payment stream. That may appeal to people who want part of their income to be more reliable. In fact, 92% of adults said it would be useful to know, with certainty, that basic living expenses are accounted for as long as they live.**

2. A way to use savings for retirement income

Annuities can become part of the shift from saving money to using money in retirement. Instead of looking only at account balances, the planning question becomes how different assets come together to support income over time.

3. Tax-deferred growth potential

Some annuities allow earnings to grow tax-deferred until money is withdrawn, but the tax treatment of annuity distributions depends on whether payments are periodic payments, or amounts received as an annuity at regular intervals, or nonperiodic payments.¹ Tax deferral can be a useful feature, but it’s important to review within the rest of your tax picture.

4. Less exposure to market swings for part of savings

Depending on the terms, some annuities, like fixed annuities, help make a portion of retirement savings less tied to daily market movement. That’s important to many retirees. In fact, 85% of adults aged 45+ said it was important that at least some retirement income continues regardless of what happens in the financial markets.**

4. A more organized income plan

For some people, an annuity helps simplify one part of retirement income planning. But that structure should be weighed against the need for flexibility.

5 annuity considerations

Annuities help create structure for a part of your retirement income, but there are a few considerations:

1. Less immediate access to some of your money

Annuities are generally long-term products. Before considering an annuity, decide how much money you want to keep liquid for emergencies and other health care costs.

2. Surrender charges may apply

Some annuities include surrender charges if you withdraw some or all of your contract value within a certain number of years after purchasing or contributing money to an annuity, and those charges can reduce the value and return on the investment.²

There is some flexibility, however.

3. Fees or optional riders may affect value

Some annuities include fees, and some offer optional riders, which are add-on features available for an additional cost. A rider may provide an added benefit, but it should still serve a clear purpose in your plan.

Before adding one, ask what it costs, what it changes in the terms and whether the benefit is worth the trade-off for your broader retirement income strategy.

4. Withdrawals may be taxable

Payments or withdrawals may be taxable depending on how the annuity was funded and how distributions are received. If you contributed after-tax dollars to an annuity, payments may be partially taxable, and the portion that represents a return of after-tax amounts is not taxed.³

Because tax treatment can vary, review the tax details before taking withdrawals or changing payout options. A financial or tax professional can help explain how annuity payments may apply to your specific situation.

5. Inflation

A payment amount that feels right today may not have the same purchasing power later. Terms can also vary, so it’s important to go over them with a financial professional with annuities expertise.

Should annuities be part of a retirement plan?

Annuities can play a key role in a retirement plan for people who want a portion of their retirement income to be more predictable. Today, that predictability matters. In fact, 45% of adults say they would be likely to consider structured, predictable income as one part of a broader retirement plan.**

Before deciding, consider how the annuity works, what it costs and what role it would play in your plan.

An annuity can be right if you:

• Want part of your income to be more predictable

• Have other liquid savings available

• Want part of your plan to be less exposed to market swings

• Understand the fees and contract terms

• Have compared it with other income options

You may need to ask more questions if you:

• Need quick access to most of your savings

• Are unsure how surrender charges work

• Do not understand the tax treatment

The decision should always start with your retirement income plan and the role an annuity can play within it. Review your income sources, expected spending needs in retirement, emergency savings and tax situation. An insurance professional can help you look at the full picture.

Sources:

*Mutual of Omaha worked with research vendor, quantilope, to conduct research related to Decumulation – the strategic drawdown of assets during retirement years. This research had a sample size of 496 respondents aged 50+ who were already retired (n=327) or nearing retirement (n=169) within the next 10 years. Respondents who stated they did not have at least some assets to draw down during retirement were excluded from the survey. The research was conducted in a 10-minute online survey from October 6-15, 2025. All data included in this report are based on Mutual of Omaha proprietary research unless otherwise noted.

**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+ 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.

1. Internal Revenue Service. (2026, March 30). About Publication 575, Pension and Annuity Income. https://www.irs.gov/forms-pubs/about-publication-575

2. U.S. Securities and Exchange Commission. (n.d.). Annuities. Investor.gov. Retrieved May 2026, from https://www.investor.gov/introduction-investing/investing-basics/investment-products/annuities

3. Internal Revenue Service. (2026, February 24). Topic no. 410, Pensions and annuities. https://www.irs.gov/taxtopics/tc410

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.