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GOBankingRates’ editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines<\/a> and our products and services review methodology<\/a>.<\/p>\n 20 Years Trusted by With rising costs and questions surrounding the sustainability of the Social Security program, more are questioning whether to buy an annuity<\/a> alongside Social Security. An annuity and Social Security both provide guaranteed income in retirement, but they work in different ways and serve distinct purposes.<\/p>\n If you\u2019re considering an annuity while you\u2019re on Social Security, here\u2019s what experts have to say<\/a>.<\/p>\n Annuity vs. Social Security<\/p>\n An annuity and Social Security are similar in that they both provide guaranteed income<\/a> that is periodically adjusted for inflation.<\/p>\n \u201cA key difference is that with annuities, you can also use the products to accumulate wealth as you save for retirement,\u201d David Byrnes, senior vice president and chief distribution officer at Security Benefit<\/a>, a leader in the U.S. retirement industry, wrote in an email.<\/p>\n<\/p>\n Annuities also come in various forms, and they can be more complex than Social Security.<\/p>\n \u201cFixed index annuities, for example, offer a variety of index accounts that allow savers to earn interest credits based on the performance of financial markets,\u201d he added. \u201cYou don\u2019t have actual exposure to market volatility, interest is earned tax-deferred and principal is guaranteed.\u201d<\/p>\n On the other hand, Social Security is a government-backed program that provides retirement benefits based on your earnings history. Payments are guaranteed for life, and unlike annuities, you don\u2019t need to purchase Social Security. You do, however, need to qualify by working and paying into the system through payroll taxes.<\/p>\n How Much Extra Income Could Both Provide?<\/p>\n According to Byrnes, how much income both could provide depends on the type of annuity, the amount of money to purchase and other specifics in the contract. <\/p>\n \u201cSome fixed annuities are still paying around 5% for example, so now is a great time to lock in a rate,\u201d he wrote. \u201cFixed Index Annuities credit interest based on the movement of financial market indexes that could potentially provide even higher returns.\u201d<\/p>\n For your Social Security payouts<\/a>, the amount you receive depends on factors such as your lifetime earnings, when you start claiming benefits and whether you continue working in retirement.<\/p>\n<\/p>\n Is It Right for You?<\/p>\n An annuity can provide a big boost to your income in retirement.<\/p>\n<\/p>\n \u201cLet\u2019s take the example of a 65-year-old collecting $2,000 monthly in Social Security. A $100,000 immediate annuity might reasonably bring in about $500 in monthly income for the rest of her life, representing a 25% income boost,\u201d explained Rich Jacoby, CEO at GoldenCrest Metals<\/a>. \u201cThat\u2019s a hugely appealing bonus for a retiree, supplying them with a guaranteed income that they don\u2019t run the risk of outliving.\u201d<\/p>\n However, Byrnes stated that with annuities, you need to determine what you want to accomplish, such as supplemental income or wealth accumulation. You also need to consider timing based on when you want to retire.\u00a0<\/p>\n But there are drawbacks to consider.<\/p>\n \u201cOne potential drawback of adding annuity income alongside Social Security benefits is that the extra income could make more of one\u2019s Social Security taxable,\u201d explained Aaron Brask, financial planner at Aaron Brask Capital<\/a>. \u201cOther sources of income could move one beyond thresholds that trigger more tax on their Social Security benefits. This phenomenon is known as the Social Security \u2018tax torpedo,\u2019<\/a> and it can generally affect people with annual incomes in the range of $35,000 to $75,000.\u201d<\/p>\n When you purchase an annuity, you\u2019re also committing to the insurance carrier for a certain time.<\/p>\n![\"\"](\"https:\/\/cdn.gobankingrates.com\/wp-content\/uploads\/2023\/11\/icon-20.svg?webp=1&quality=75\"){kind=icon}
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