Is This the Key to Unlocking Guaranteed Income in Retirement?

Core Insights - Vanguard is launching a new 401(k) target date fund in partnership with TIAA, allowing older workers to convert some savings into a fixed annuity, available in 2026 [2] - Annuities are gaining popularity, with total U.S. annuity sales reaching a record high of $119.2 billion in Q2 2025, according to LIMRA [3] Annuity Overview - Annuities provide a steady income stream for retirement, typically through a lump sum or series of payments, with the insurer paying back at regular intervals [5] - Different types of annuities exist, including fixed annuities with guaranteed returns and variable/indexed annuities that offer growth potential [6] Considerations for Annuities - Annuities often do not adjust for inflation, and market-based annuities may cap gains, potentially leading to lower earnings compared to high-growth investments [7] - They can be beneficial for retirees concerned about outliving their savings or those who prefer predictable income [8] - However, annuities can be complex and costly, with various fees including administrative, maintenance, and surrender fees [9] Target Audience for Annuities - Investors with significant liquid assets, strong pensions, high risk tolerance, or legacy goals may not require annuities [10] - Annuities can help fill gaps between expected spending and guaranteed income sources like Social Security or workplace pensions [14] Financial Planning and Annuities - It is crucial to calculate the full costs of an annuity, including any special features or riders that may incur additional charges [14] - Understanding the tax implications is essential, as annuity earnings are taxed as ordinary income, which could be higher than capital gains tax [14] - Consulting a certified financial planner is recommended due to the complexity of annuity contracts [14]