As Christian stewards of God’s resources, we are called to manage our finances with wisdom, discernment, and faith. Proverbs 21:5 reminds us, “The plans of the diligent lead to profit as surely as haste leads to poverty.” One tool that may align with your financial plan is an annuity—but is it right for you? At Greenway Financial Planning, we’re here to help you prayerfully consider whether an annuity fits into your retirement strategy. Let’s explore key considerations, rooted in both financial wisdom and Christian values.
Understanding Annuities Through a Biblical Lens
An annuity is a contract with an insurance company designed to provide a steady income stream, often for retirement. As Christians, we seek financial tools that promote stability and peace, allowing us to focus on serving God and others. Annuities can offer that stability, but they’re not one-size-fits-all. To determine if an annuity aligns with your goals, consider:
- Your Retirement Assets and Time Horizon: Are your current savings sufficient for the retirement God has planned for you? Reviewing your assets and timeline ensures your plan honors your calling.
- Risk Tolerance: Psalm 112～3 says, “Wealth and riches are in their houses, and their righteousness endures forever.” Balancing risk and reward in your investments reflects prudent stewardship.
- Types of Annuities: Annuities come in various forms—fixed, variable, and equity-indexed—each with different risks and returns. Fixed annuities offer guaranteed income, while variable and indexed options involve more risk but potential for growth.
- Timing and Term: Immediate annuities provide income now, while deferred annuities plan for the future. You can choose a fixed period or lifetime payments, depending on your needs.
Prayerfully reflect on these factors, asking God for guidance as you evaluate your financial tools.
Aligning Cash Flow with God’s Provision
Retirement planning is about trusting in God’s provision while preparing diligently. Annuities can help balance your income sources, ensuring you have the resources to live out your purpose. Consider these questions:
- Current or Future Income Needs: If you need income now, an immediate annuity can provide instant payments. For future needs, a deferred annuity lets you choose when payments begin, offering flexibility.
- Diversifying Your Portfolio: Ecclesiastes 11:2 advises, “Invest in seven ventures, yes, in eight; you do not know what disaster may come upon the land.” An annuity can diversify your retirement plan, reducing reliance on volatile markets.
- Access to Principal: Life is unpredictable, and you may need early access to funds. Understand the tax consequences and surrender fees for early withdrawals to avoid unintended burdens.
By aligning your cash flow with your faith, you can create a plan that supports your family and ministry without fear of financial shortfall.
Choosing the Right Annuity with Discernment
Selecting an annuity requires careful consideration of its features and your priorities. Here are some options to explore:
- Fixed Annuities: These provide a guaranteed income stream, ideal if stability is your priority. They reflect the certainty of God’s promises, offering peace of mind.
- Variable Annuities: These allow you to invest in various funds, with potential for growth but also risk. They suit those willing to take calculated risks for greater returns.
- Indexed Annuities: These offer a minimum return plus growth tied to a market index, balancing risk and reward. They can be a middle ground for cautious investors.
- Riders and Benefits: Riders like guaranteed withdrawal benefits, death benefits, or cost-of-living adjustments (COLA) can tailor the annuity to your needs. For example, a long-term care rider could support health challenges, ensuring you’re prepared for unexpected trials.
Review contract features like fees, surrender periods, and guarantees. As Matthew 7:15 warns, “Watch out for false prophets. They come to you in sheep’s clothing, but inwardly they are ferocious wolves.” Similarly, scrutinize annuity contracts to ensure they align with your goals and values.
Tax Considerations and Faithful Stewardship
Taxes are a reality of financial planning, but as Christians, we strive to be “as shrewd as snakes and as innocent as doves” (Matthew 10:16). Annuities offer tax advantages, but they require careful comparison to other options:
- Tax-Deferred Growth: Annuity earnings grow tax-free until withdrawal, allowing your investment to compound over time.
- Qualified vs. Non-Qualified Annuities: Qualified annuities (funded with pre-tax accounts like IRAs) are fully taxable upon withdrawal. Non-qualified annuities tax only the earnings, using an exclusion ratio.
- Other Tax Impacts: Annuity payments may increase your taxable income, potentially affecting Social Security benefits. Plan holistically to avoid surprises.
- Qualified Longevity Annuity Contracts (QLACs): These allow you to defer income from retirement accounts up to age 85, reducing required minimum distributions (RMDs) and providing late-life income.
Compare annuities to taxable accounts, which may offer lower capital gains rates. Seek God’s wisdom to choose the path that maximizes your resources for His kingdom.
Purchasing an Annuity with Prayerful Wisdom
When buying an annuity, approach the decision with prayer and diligence:
- Evaluate Insurance Companies: Check ratings to ensure the company is financially sound, as you’re entrusting them with God’s resources.
- Funding Options: You can fund an annuity with IRA rollovers, retirement plan assets, or taxable accounts. Each option has tradeoffs, such Ascertain whether flexibility or tax benefits outweigh the costs.
- Laddering Strategy: To mitigate interest rate volatility, consider purchasing annuities over time, spreading risk like a wise steward.
Estate Planning and Leaving a Legacy
As Christians, we aim to leave a legacy that glorifies God. Annuities can support your spouse or heirs through death benefits or joint-and-survivor options. If replacing an existing annuity, a 1035 exchange can maintain tax advantages. Consider how your choices reflect 1 Timothy 5:8: “Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever.”
Seek God’s Guidance with Greenway Financial Planning
At Greenway Financial Planning, we believe financial planning is a ministry. Our team, led by Luke McCord, is committed to helping you align your finances with your faith. If you’re wondering whether an annuity fits into your God-given plan, contact us at 678-341-0186 or luke@greenwayfinancialplanning.com. Let’s pray and plan together to ensure your resources serve His purpose.
“Trust in the Lord with all your heart and lean not on your own understanding; in all your ways submit to him, and he will make your paths straight.” (Proverbs 3:5-6)