The following is adapted from Fire Your Financial Advisor.

For almost 400 years, it took 15 to 30 seconds to fire a single flintlock shot. Samuel Colt solved that problem with the first six-shot revolver. Colt’s new weapon fired quickly, but missed often.

Then it happened: .44 caliber, 200-grain bullet: 40 grains of black powder, 1,200 fps muzzle velocity, 150-yard range, with a lever action discharging 15 shots in under a minute. It was in production for 52 years, resulting in 720,610 units built. 

Buffalo Bill called it simply, “The Boss.” Its official name was the Winchester New Model of 1873. Most of the world knows it as “the gun that won the West.” It changed how battles were fought—and won—for the next half a century. It was the perfect weapon.

What if I told you there was also a perfect retirement weapon? Well, there is: the annuity.

Like politics, brussels sprouts, religion, and former president Donald Trump, annuities provoke a visceral reaction: love or hate. No in-between. I find this both fascinating and strange for so many reasons. How could such a simple retirement tool, which is more or less a tax-deferred certificate of deposit, cause so much controversy?  

To answer that question, the best thing to do is to start by explaining some annuity basics.Then, we’ll look at some of the old annuity problems. Finally, we’ll unveil a newer type of annuity filling the market—one that could be your secret weapon to survive retirement.

Annuity Basics

Annuities are an insurance product—like life insurance policies—built by insurance companies. The most common annuities are fixed. Fixed annuities pay a fixed rate of return (i.e. 3 or 4 percent). 

Like certificates of deposit (CDs), fixed annuities do not go backward, so your principal is 100 percent protected. Like CDs and bonds, annuities come with a set term that can vary from one year to 10 years or longer. Also like CDs and bonds, many annuities require that you hold onto them for a certain period of time, and a commission is given to the selling insurance agent by the insurance company (the fee does not come out of your account).

However, unlike CDs and bonds, most annuities allow access to the principal every year without penalty. Retirees can take out around 10 percent each year without worry of a fee.   

While getting access to your dollars before the end of the term of your annuity investment is certainly nice, that’s not the best part. The best part is that annuities are tax-deferred. That means that, like your IRA, your money grows tax-free so you earn interest on interest that has not yet been taxed—then, when you take it out, you pay Uncle Sam. And when you do take out your gains, you only pay tax on the gains. That is a huge benefit when it comes to trying to limit your taxable income in retirement—and yet annuities are an often-overlooked tool.

By now, you might be scratching your head. Chances are you have been told that annuities were evil incarnate, yet what I’ve just described seems like a simple and straightforward win for retirees as part of their retirement tool belt, right? So what’s the problem?  

Old Annuity Problems

They say every family has its black sheep. It’s the same for annuities—although, ironically, the black sheep of the annuity family isn’t even really an annuity, in my opinion. Ladies and gentlemen, meet the variable annuity.  

Variable annuities—which are pretty terrible all around—are just a bunch of mutual funds (known as “subaccounts”) with an additional insurance wrapper for marketing purposes. The first red flag is that selling them requires more than just an insurance license; it requires a Series 6. Next, they are confusing, and many retirees feel they are misrepresentative of what you get versus what you are sold. Lastly, they are packed to the brim with fees. 

The sales statement that gets variable annuities in the most trouble is the fake guarantee. People are lured in with a promise of “5 percent guaranteed growth” every year. But it is simply not true. What advisors don’t tell you is that 5 percent guaranteed growth is not real money. That growth only appears on a ledger account that tabulates the running tally of an income bucket. It is not real money you can walk away with and use.

You do have a “real account” value number, but that account is subject to stock market ups and downs and the huge fees that come with variable annuities. The subaccount management, initial advisor commission, and additional insurance costs means the fees can regularly be 5 percent or more every year. 

To set the record straight, annuities shouldn’t have suffered bad PR because of variable annuities. Variable annuities aren’t real annuities. They are just a creation to make mutual funds even more expensive. Luckily, the world seems to be catching on, because we are seeing less and less of these terrible products on retirees’ balance sheets each year.  

The New(er) Annuity

An annuity is defined by Merriam-Webster as “a sum of money payable yearly or at other regular intervals.” This is where much of the confusion lies for retirees. In the 1980s and 1990s, almost all annuities were set up to mimic pensions. You give the insurance company a lump sum, and in return you get a certain amount back each month, with a little interest, forever. This is called “annuitizing” your annuity. 

Understandably, most people didn’t like the idea of losing access to their principal forever. Retirees didn’t just need income tools; they needed a conservative method of wealth accumulation—so the market needed to create a new tool for retirees. 

The insurance companies answered the call with the fixed index annuity (FIA), an annuity that has given retirees more upside options and no downside risk. Fixed index annuities are tied to an index like the S&P 500, Dow Jones, etc., so if that index goes up, your annuity does too. If the index loses money, your floor is always zero. You will forfeit some of the unlimited upside of the stock market index, but you will have removed any chance your life savings could go backwards—the best of both worlds.  

The first FIA was created in 1995, but their popularity, and the market, really took hold after 2010. Retirees had finally found a tool that gave them guaranteed principal protection, participation in the market, and—one of the biggest benefits—no ongoing fees or costs. Like the Winchester New Model 1873, the FIA was a complete game-changer.

Take Control Back

The FIA was a revolutionary idea that came along none too soon. I believe that retirees would have taken this option long ago if it had been available. Alas, the only choice before 1995 was 1 percent annual fees with stocks, bonds, and mutual funds. 

Thankfully, with the advent of the FIA, the era of the investment-only approach—with the financial advisor who chases arbitrary returns that you don’t even need to enjoy your golden years—is coming to an end.

It’s no exaggeration to say that the FIA is the perfect way for retirees to take back control of their lives and their sanity. It brought annuities out of the dark ages and transformed them from a pension replacement tool to a very real wealth accumulation weapon that could finally take aim at CDs, stocks, bonds, and mutual funds.

If you are getting close to retirement, it’s worth exploring how FIAs can work for you. After all, retirement should be the exciting part of your retirement, not your investments. Your investments should be predictable and, frankly, a little boring. You’ve worked your whole life; it’s time to relax and enjoy it. And with an FIA, the chances are higher than ever that you can.

For more advice on how to ensure you can thrive in retirement, you can find Fire Your Financial Advisor on Amazon.

Greg Aler was born and raised in small-town Ohio. After attending law school, he worked at one of the largest law firms in the world. Later, Greg went on to build three multimillion-dollar companies before the age of forty: an elder care law firm, a financial services firm, and a real estate company. He re-thinks and re-builds industries to help service the other 99 percent of America. Greg is currently the CEO of Golden Reserve and has his own TV, radio, and podcast show: Expedition Retirement. The only thing Greg loves more than cooking, scuba, boating, and laughing with friends on his back porch is being with his wife, Fernanda, and three kiddos (Lilly, Lola, and Louie).