What is the purpose of an annuity?
The Annuity Man
Annuities were first introduced in the Roman Times to provide a lifetime income stream to the dutiful Roman Soldiers and their families. Today that type of annuity is called a Single Premium Immediate Annuity (SPIA), and has been sold in the United States for over two centuries. In addition to lifetime income guarantees, annuities can also contractually solve for principal protection, legacy, and long term care.
I developed an easy to remember called P.I.L.L. that helps you remember what annuities contractually solve for. P stands for Principal Protection. I stands for Income For Life. L stands for Legacy. The other L stands for Long Term Care/Confinement Care. In my opinion, if you don't need to contractually solve for one or more of the P.I.L.L., then you don't need an annuity.
Most people use annuities in their portfolio to contractually solve for lifetime income needs. Income Now needs are solved using Single Premium Immediate Annuities (SPIAs). Income Later needs can be contractually solved using Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders attached to deferred annuities. Lifetime income from any annuity type is a combination of return of principal plus interest. However, your life expectancy(s) at the time the payment starts is the primary pricing mechanism, not interest rates. Interest rates play a secondary role in the pricing of lifetime income.
So ask yourself if you need to contractually solve for the P.I.L.L. to see if an annuity would properly fit in your portfolio.
You can contact Stan if you have any questions or want to see quotes on your specific situation.