Create Your Own Pension Plan

Presented by Jim Guynan

An annuity can be a great way to save for retirement on a tax-deferred basis, in effect creating your own personal “pension” plan. As with any investment, however, there are also potential disadvantages that should be evaluated before purchasing an annuity.


  • A fixed annuity protects against a decline in asset value during market downturns.
  • Earnings on your annuity premiums are tax deferred so long as they remain in the annuity.
  • An annuity can be used to provide a steady source of retirement income that you cannot outlive.
  • Unlike an IRA or employer-sponsored retirement plan, there are no annual contribution limits to an annuity…you can contribute as much as you want.
  • Subject to the terms of the contract, there is no required date by which you must begin receiving annuity income payments, providing you with the flexibility to defer payments until you need the income.
  • The annuity death benefit passes directly to your beneficiary without probate.
  • In most states, an annuity is free from the claims of a creditor.


  • The growth of a fixed annuity may not keep pace with inflation.
  • Premiums for a non-qualified annuity are not tax deductible, meaning that they are made with after-tax dollars.
  • While you can surrender or make withdrawals from a deferred annuity before you begin receiving income payments, the surrender or withdrawal may be subject to a charge if made within a stated number of years after the annuity is initially purchased.
  • If made prior to age 59-1/2, a surrender or withdrawal will be subject to a 10% federal penalty tax on the gains of the withdrawal unless one of the exceptions to this tax is met.
  • When received, gains are subject to ordinary income tax rates and not the lower capital gains tax rate.
  • Once annuity income payments begin, annuity contracts vary in regard to whether the payment amount can be changed and/or whether amounts can be withdrawn from the contract.
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