Getty Images 
For most retirees, Social Security provides a reliable foundation for their finances. But while those benefits can help cover the essentials, the benefit checks that retirees receive, which average just under $2,000 currently, generally fall short of covering every retirement expense, let alone giving seniors the freedom to enjoy their later years. That’s why many focus on building a retirement portfolio with a variety of income streams instead. An annuity can play a big role in that process.
An annuity is a unique retirement product that offers guaranteed income for life in return for a lump sum payment, which makes it a natural partner for Social Security. Together, the two income streams can create a more predictable, stress-free retirement plan. But while annuities can help supplement your retirement income, they aren’t just useful for that purpose. In many cases, they can also influence how you use and maximize your Social Security benefits.
If you’re looking to make your money last and take the guesswork out of your retirement strategy, understanding how an annuity could impact your Social Security benefits is critical. That’s what we’ll examine below.
Compare your annuity options and add the right one to your portfolio today.
How an annuity can impact your Social Security benefits
Here’s a closer look at the key ways an annuity could affect your Social Security benefits:
An annuity may let you delay Social Security and boost your benefits
One of the ways that an annuity can impact your retirement benefits is by providing income that allows you to delay claiming Social Security. While you’re eligible to claim these retirement benefits as early as age 62, waiting until full retirement age — or better yet, age 70 — can significantly increase your monthly Social Security checks. For each year you delay beyond your full retirement age, your benefit grows by about 8%.
But delaying only works if you have other income to rely on in the meantime. That’s where buying an annuity comes in. With guaranteed monthly payments from an annuity, you can cover your expenses comfortably while letting your future Social Security benefits grow. This strategy can, in turn, result in a much higher lifetime income, giving you greater financial security for your later years.
Find out how much you could receive each month from the right annuity.
An annuity could help fill in the gaps left behind by Social Security
Financial security in retirement often requires juggling different sources of income, but those streams don’t always line up perfectly. Social Security pays monthly, but depending on how much you qualify to receive, it may not be enough to cover large or unexpected expenses. An annuity helps fill those gaps by providing consistent, predictable monthly payments you can rely on.
This steady cash flow can make it easier to manage your retirement budget, cover rising living costs and avoid dipping into your savings too early. For many retirees, this combination of Social Security and annuity income creates a “paycheck” that feels a lot like earning a salary again, and that kind of peace of mind is invaluable.
An annuity can help you manage taxes on your Social Security benefits
A well-structured annuity can also help you manage taxes on your Social Security benefits. Up to 85% of your Social Security income can be taxable if your retirement income exceeds certain thresholds, but annuities give you the tools to keep your tax bill in check.
For example, by buying certain types of annuities, like Roth-funded or deferred ones, you can provide yourself with tax-advantaged income later in retirement. This flexibility can help you control how much taxable income you report each year, which potentially allows you to keep more of your Social Security benefits tax-free. So, coordinating your annuity and Social Security income streams thoughtfully can make a big difference in how much of your money stays in your pocket.
How to make Social Security and an annuity work for you
Combining Social Security with an annuity can provide two income streams, but it can also help you create a retirement plan that’s tailored to your needs and lifestyle. Here are a few smart ways to make sure this pairing benefits you:
- Use an annuity to cover essential expenses. Social Security is designed to cover only a portion of your basic costs, but pairing it with a fixed annuity can ensure you have enough predictable income to pay for housing, utilities, food and healthcare — the core expenses you can’t skip.
- Bridge the gap if you retire early. If you want to leave the workforce before you’re eligible for Social Security, an annuity can provide steady payments to bridge that gap and give you flexibility to delay claiming benefits for a bigger payout later.
- Create a “floor” of guaranteed income. Combining Social Security with annuity payments establishes a foundation of income you can’t outlive. From there, you can use other investments for discretionary spending or legacy planning.
- Manage taxes and market risks. Certain annuities can give you control over when and how you receive income, which may help you stay in a lower tax bracket and reduce the chance of withdrawing from your investments during a market downturn.
The bottom line
Social Security gives you a solid start for retirement income, but it’s rarely enough to fully support all of your expenses. Adding an annuity to the mix can enhance your financial security, help you delay claiming Social Security for bigger benefits and give you steady income for the rest of your life. And, with the right strategy in place, these two income streams can work hand in hand to give you peace of mind and more freedom in retirement.
