Kansas City Retirement Advisors: Annuities and Social Security

Annuity contracts and Social Security claiming decisions both produce income on a schedule, so the sensible order is to decide what income you need and when, then determine whether any contract has a job to do.

Why these two get discussed together

Both are long-horizon decisions, both are difficult to reverse, and both produce income that arrives on a schedule rather than from selling something. That is where the similarity ends, and the differences are what make the coordination worth doing.

Social Security is a federal benefit with fixed rules. Your claiming age determines a monthly amount for life, and the choice is largely irreversible once made. An annuity is a contract with an insurance company. What it provides, what it costs, and how long your money is committed are defined by that contract and by the financial strength and claims paying ability of the carrier that issues it.

The order matters. Decide what income you need, from when, and what you already have coming in. Only then does the question of whether a contract has a job to do become answerable. Approaching it the other way around means evaluating a product against nothing in particular.

Social Security claiming, in outline

Three reference points shape most claiming conversations.

• Age 62. The earliest most people can claim. Income starts sooner and the monthly benefit is permanently reduced.
• Full retirement age. Between 66 and 67 for people approaching retirement now, depending on birth year. The unreduced benefit.
• Age 70. Delayed retirement credits accrue between full retirement age and 70, increasing the monthly benefit. Credits stop accruing at 70.

Married couples have a further layer. A spouse may be eligible for a benefit based on the higher earner's record. A surviving spouse may be eligible to step up to the deceased spouse's benefit amount. For many couples, the higher earner's claiming date is the decision that carries the most weight, because it sets the survivor benefit that one of them will eventually live on.

Taxation depends on provisional income, which combines half your Social Security benefits with your other income and any tax-exempt interest. Above certain thresholds, a portion of benefits becomes taxable. Those thresholds are set by federal rule and are not indexed the way tax brackets are, so more retirees cross them over time. Confirm current figures with the Social Security Administration or your CPA.

This is why our Social Security planning work starts with why rather than when. Two people can make the same claiming decision and have it be right for one and wrong for the other, not because the rules differ but because the lives do.

What annuity contracts actually are

An annuity is a contract with an insurance company. It is not an investment, and any reference on this page to protection, safety, steady income or lifetime income refers to fixed insurance products, never to securities or advisory products.

Variable annuities are securities and are offered by prospectus. Fixed and fixed indexed annuities are insurance products. Guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. Annuities are not FDIC insured. Annuities may be subject to fees, surrender charges and holding periods that vary by insurance company.

The terms that deserve the most attention are the ones least likely to appear in a brochure. How long is the surrender period and what does it cost to access money during it. What are the caps, spreads and participation rates, and can the company change them. What does each rider cost and what does it actually do. What is the carrier's financial strength rating. How is the contract taxed, and how does it pass to beneficiaries.

None of this makes annuities good or bad. It makes them contracts, which is exactly how our annuities and insurance work treats them. We read the contract with you, including contracts you already own and bought elsewhere.

How the two interact

The practical link is timing. Delaying Social Security raises the eventual monthly benefit, but it means covering the gap years from somewhere else. Some households cover that gap from portfolio withdrawals. Some cover it from an income contract already in place. What is available to bridge the gap is often what determines whether delaying is realistic at all.

Taxes connect them too. Withdrawals and conversions in the years before and during claiming raise provisional income, which can increase how much of a Social Security benefit is taxable, and can raise Medicare premium surcharges roughly two years later. Sequencing those events deliberately is the work described in our tax-efficient retirement planning.

And beneficiaries connect them. Annuity contracts pass by beneficiary designation rather than through a will, which links them directly to estate and legacy planning. A designation left unchanged after a life event can override the rest of an estate plan.

Why the state line matters here

The Kansas City metro spans two states that treat retirement income differently. Where you live, and where you may move, affects the net income a plan produces. Our office is on West 94th Terrace in Prairie Village, a short drive from Overland Park, Leawood, Mission, Fairway, Roeland Park and Mission Hills. We also work with clients in Shawnee, Lenexa, Merriam, Olathe and across the line in Kansas City, Missouri. See the communities we serve across the Kansas City area.

Questions worth asking any advisor

• How do you decide whether an income contract belongs in a plan at all
• How do you model Social Security timing, including spousal and survivor consequences
• In which capacity are you acting on this recommendation, advisory, brokerage or insurance, and how are you paid for it
• Will you review contracts I already own, including ones purchased elsewhere
• Do you coordinate with my CPA and my attorney
• Who will I meet with at annual reviews

LaMont Chandler holds FINRA Series 7, 24 and NASAA Series 63, 65 registrations, CRD 2794744, and has been registered in the securities industry since 1996. Securities and advisory services are offered through Madison Avenue Securities, LLC, member FINRA and SIPC, and a registered investment advisor. CFG Wealth Management Inc. and Madison Avenue Securities are not affiliated companies. His record is available on FINRA BrokerCheck.

Common questions

Where this connects

• Retirement income planning is the plan these two decisions sit inside
• Social Security planning covers claiming timing in detail
• Annuities and insurance covers how we read a contract
• More retirement planning insights