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How one type of annuity can fit into a business owner's retirement

Kelly Kowalski, Cliff Noreen, and Bronwyn Shinnick

Posted on September 20, 2023

Our executives and experts team up to write educational articles, covering a variety of financial topics such as life planning, college savings, and retirement.
Fixed deferred annuities for retiring business owners
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Define what a deferred fixed annuity is and how it works.

Point out how such an annuity can provide a source of retirement income, much like a pension.

Describe how life insurance companies that offer deferred fixed annuities stand behind the interest rate and income guarantees.

You can’t depend on your small business to offer a predictable amount of future retirement income. And the same is true for your equity investments, particularly if you’re unfortunate enough to retire during a bear market. But there is one financial product that can provide a guaranteed income for life — a deferred fixed annuity.

A deferred fixed annuity can offer benefits similar to those of a traditional corporate pension. In other words, it produces a dependable stream of retirement income that can continue as long as you live, or as long as you and your loved one live. You can elect to receive income on a monthly, quarterly, semi-annual, or annual basis, and the amount of each payment will be the same.

Before income payments begin, you fund the annuity by making purchase payments. Unlike qualified retirement plans, there is no annual IRS cap on contributions to a nonqualified deferred fixed annuity, and purchase payments are not income tax deductible. Your annuity savings grow steadily (minus withdrawals), compounding on a tax-deferred basis and earning a competitive interest rate, with no exposure to the stock market. The insurance company that issues the annuity resets the rate from time to time, but guarantees it won’t drop below a specified minimum.

At retirement, the deferred fixed annuity works in a manner similar to a personal pension — a source of regular income payments you can depend on to cover fixed or discretionary expenses. This guaranteed cash flow can continue for a specific number of years or for a lifetime. An annuity is the only personal financial product that offer an income that can’t be outlived. This benefit is especially appealing as longevity continues to increase.

The life insurance companies that offer deferred fixed annuities stand behind the interest rate and income guarantees. That means your retirement income plan is only as good as the financial strength of the annuity issuer. Third-party rating agencies like Standard & Poor’s and A.M. Best publish reports and ratings that are useful for assessing the financial strength of the issuing company. The due diligence you do today can pay off in having retirement income you can depend on. (Find MassMutual's rating here)

The economic turmoil and inflation trends of recent years was dramatic and unexpected, precipitating the end of a long bull market and forcing a healthy economy into a downturn. It was a stinging reminder of how quickly the business environment can change, threatening earnings and profitability and invalidating financial projections. And it demonstrated the vulnerability of millions of small business owners whose thriving companies suddenly faced the risk of permanent closure and whose dreams of financial security went up in smoke.

Talk to Us

A deferred fixed annuity offers many benefits but is not the right choice for everyone. Be sure to talk to a MassMutual financial professional to determine whether the product is a good fit for your needs.

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This article was originally published in August 2021. It has been updated.


Annuity products are issued by Massachusetts Mutual Life Insurance Company (MassMutual) and C.M. Life Insurance Company, Springfield, MA 01111-0001.


The information provided is not written or intended as specific tax or legal advice. MassMutual, its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.