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Understanding Annuities: A Guide for Colorado Retirees

Understanding Annuities: A Guide for Colorado Retirees

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Mike Nekoorad

Retirement planning doesn’t end when you stop working. After the transition from a paycheck to retirement income, your savings need to support everyday expenses, healthcare costs, lifestyle choices, and the possibility of a long retirement.

Therefore, turning accumulated assets into a steady income stream is just as important as building those assets in the first place.

An annuity for retirement planning is one option retirees can consider as part of that income strategy.

Annuities differ widely in how they provide income, handle investment exposure, charge fees, and restrict access to funds. Depending on the contract, an annuity can provide predictable payments, offer tax-deferred growth, or include specific income and beneficiary features. These differences make it important to look beyond the projected income and consider how an annuity fits with the rest of a retirement plan.

The Federal Reserve’s 2026 report found that 67% of U.S. adults had assets designated to generate retirement income, but only 35% of non-retirees felt their retirement savings were on track. That gap highlights an important part of retirement planning: having savings is one thing, but knowing whether those assets can provide enough reliable income throughout retirement is another.

For Colorado retirees, annuities can be one piece of that income strategy, alongside Social Security, investments, pensions, and other sources of retirement income.

In this blog, we explain how annuities work, explore the different types available, compare their income, growth, fee, and liquidity features, and discuss how Colorado retirees can evaluate an annuity as part of a broader retirement income strategy.

What Are Annuities and How Do They Work?

An annuity is an insurance contract designed to provide income or accumulate money for future income. A person generally gives an insurance company either a lump sum or a series of payments. Depending on the contract, the money can accumulate before payments begin, or income can start according to the selected terms.

This makes an annuity for retirement planning different from simply holding stocks, bonds, or cash. The contract can include specific income guarantees, withdrawal provisions, fees, and other conditions.

How an Annuity Can Create Retirement Income

Retirement income often comes from several sources, with annuities serving as one option for adding contract-based payments to the overall income mix.

Why Consider Annuities for Retirement?

A retirement portfolio needs to support expenses over an uncertain number of years. Some retirees prioritize predictable income for recurring expenses, while others place greater emphasis on investment growth and liquidity.

Creating a Predictable Retirement Income Stream

Annuities offer retirees a predictable income stream, with certain contracts providing lifetime payments that help address the risk of outliving retirement assets.

For example, a retiree with $500,000 in retirement savings allocates a portion to an annuity that provides $1,500 in monthly income. That income covers recurring expenses, while the remaining savings stay available for other retirement needs.

Balancing Income, Growth, and Access

Retirement assets serve different purposes. Cash can provide short-term liquidity. Investments can support long-term growth. Insurance can address specific risks. An annuity can potentially address income needs.

This makes annuities for retirement savings worth considering as one component of a larger plan rather than as a replacement for every other retirement asset.

Types of Annuities Colorado Retirees Can Consider

Each annuity type has its own approach to interest, investment exposure, income payments, fees, and withdrawal access. Here are some of the examples:

Fixed Annuities

Fixed annuities provide a stated interest rate for a specified period, offering greater predictability than products tied directly to market performance. The contract terms also determine how the annuity works over time.

Key details to review include:

Variable Annuities

Variable annuities take a different approach by allowing money to be allocated among investment options. The account value moves with the performance of those investments, creating greater exposure to market fluctuations.

Key considerations include:

Fixed Indexed Annuities

Fixed indexed annuities calculate interest credits using a formula tied to the performance of a market index. The contract does not represent direct ownership of the underlying index, and the interest credited depends on the contract’s specific formula.

Important terms include:

These differences create several annuity options for retirement, with each serving different financial needs.

Comparing Annuity Options for Retirement

For retirees, comparing annuity options involves weighing income, growth potential, costs, contract terms, and access to funds.

Guaranteed Income vs. Growth Potential

Some retirees prioritize predictable income. Others want greater exposure to potential market growth. Variable products involve investment risk, while fixed and indexed contracts have their own restrictions and risks.

The right balance depends on the retiree’s existing assets, income sources, time horizon, and comfort with investment fluctuations.

Fees, Charges, and Contract Terms

Before purchasing, review:

Two contracts offering similar-looking income illustrations can have different fees and restrictions.

Liquidity and Access to Your Money

Annuities often include surrender periods or charges for certain withdrawals, which makes access to other liquid funds important during retirement. Medical costs, home repairs, travel, family needs, and unexpected expenses all require readily available cash.

Keeping sufficient liquid assets outside an annuity provides access to funds without relying on the contract’s withdrawal provisions.

How to Evaluate the Best Annuities for Retirees

The best annuities for retirees depend on your income needs, risk tolerance, assets, health and longevity outlook, liquidity needs, tax situation and legacy goals.

Match the Annuity to Your Retirement Income Needs

Start by calculating essential monthly expenses and identifying existing guaranteed income from Social Security or pensions. Then determine whether there is an income gap.

That gap helps establish whether an annuity has a useful place in the plan and how much of the portfolio, if any, belongs in the contract.

Review Risk and Investment Preferences

Consider:

Review Taxes and Beneficiary Provisions

Tax treatment varies based on whether an annuity sits inside or outside a qualified retirement account, while beneficiary provisions depend on the specific contract. These considerations also connect with the rules governing other retirement accounts.

For example, the IRS sets annual IRA contribution limits separately from annuity contract provisions. For 2026, the combined traditional and Roth IRA contribution limit is $7,500, or $8,600 for individuals age 50 or older.

Looking at these tax rules alongside withdrawals, beneficiary provisions, and other retirement assets gives a more complete view of an annuity’s place in a retirement plan.

Buying Annuities for Retirement: What to Review First

Questions to Ask Before Purchasing an Annuity

Before buying annuities for retirement, consider:

Where Annuities Fit Within a Broader Financial Plan

Annuity decisions make more sense when viewed alongside the rest of a retirement plan. Social Security, pensions, 401(k)s, IRAs, taxable investments, insurance, cash reserves, tax planning, and estate planning all shape how retirement income is structured.

For Colorado retirees, annuities for retirement income fit within this broader picture, allowing the contract’s income, costs, and terms to be evaluated alongside other financial resources.

How Colorado Financial Advisors Can Help With Annuity Planning

At Colorado Financial Advisors, we evaluate annuities within the broader retirement plan, considering income needs, existing assets, taxes, insurance, and long-term financial goals.

Reviewing Annuities Alongside Your Other Retirement Assets

Our team uses a fee-based planning process that covers financial planning, tax planning, money management, estate planning, and insurance. Its planning process also includes reviewing investments, insurance coverage, goals, and progress.

That broader review helps put the annuities Colorado retirees are considering into the context of their complete financial picture.

Building a Retirement Income Strategy

Our team reviews retirement assets, income sources, investment allocation, taxes, insurance, and estate considerations when developing a retirement strategy.

For someone considering an annuity for retirement planning, this type of review can help identify where predictable income fits within the larger plan.

FAQs About Annuities for Retirement

Are Annuities a Good Choice for Retirement?

Annuities suit some retirees who value predictable income, depending on their financial situation and the contract. Fees, liquidity, guarantees, investment risk, taxes, and other provisions require review before purchasing.

What Are the Best Annuities for Retirees?

The best annuities for retirees depend on income requirements, risk tolerance, liquidity needs, existing assets, taxes, and legacy goals. Product features and contract terms also differ significantly.

How Much Money Should a Retiree Put Into an Annuity?

Some financial planning guidance suggests allocating 25% to 40% of retirement savings to an annuity to help cover essential lifetime expenses. However, the appropriate amount varies based on existing guaranteed income, monthly expenses, liquid savings, investment assets, and other retirement goals.

Are Annuities Taxable in Retirement?

Annuity taxation depends on the type of account and contract. Withdrawals from qualified accounts and nonqualified annuities can receive different tax treatment, so the specific structure needs review.

Can You Lose Money in an Annuity?

Risk varies by product. Variable annuities have investment risk, while fixed and indexed products have different risks, fees, restrictions, and contract provisions. A guarantee also depends on the financial strength and claims-paying ability of the issuing insurance company.

Plan Your Retirement Income With Colorado Financial Advisors

An annuity decision deserves to be viewed in the context of your complete financial picture. Your retirement income, investments, tax strategy, insurance coverage, estate plan, and long-term goals all influence whether an annuity belongs in your plan and how it should be structured.

At Colorado Financial Advisors, our fee-based planning process brings these areas together. Our Denver-based financial advisors take time to review your current finances, establish meaningful goals, assess your retirement income needs, and develop a plan built around your priorities. 

From annuity options for retirement and investment management to tax and estate planning, we help connect each part of your financial strategy.

Looking to build a clearer plan for retirement? Schedule a consultation with us to discuss your goals, income needs, and the role an annuity could have in your financial future.