Annuities have been a popular investment option for a long, long time. The first recorded fixed annuity in the U.S., offered to Pennsylvanian Presbyterian ministers and their families, dates back to 1759. Archeological evidence suggests annuities, of a type, were also present in ancient Egypt and the Roman Empire.

But even a centuries-established track record doesn’t guarantee a given investment vehicle is well-understood by the average Jane or Joe. Even savvy investors are often confused by annuities—and even if you have a general understanding of what an annuity is, you might not know if buying one is the right fit for your finances.

Sometimes, though, complexity holds a worthy opportunity—and with a little help, annuities don’t have to be so complex. Below, find three surefire signs an annuity might be a good option for your investment portfolio.

1. You’re in Relatively Good Health

If you are a relatively healthy person planning for or entering retirement, an annuity may be a good option for you. Annuities can help maintain your standard of living by providing guaranteed income. They can also supplement other income sources, like Social Security, a pension, or funds from an IRA, especially if you estimate that these may fall short of meeting your retirement needs.

Annuities are paid out over a fixed period of time, meaning you can predict how long the stream of income will last—a great perk if you’re healthy enough to see all the benefits. But beware: If you’re not in the best health, there’s a chance that you won’t outlive your annuity. Depending on the type you select, you might leave money on the table if the worst happens, forfeiting all remaining payments without the option to pass them on to your beneficiaries.

No one wants to think about their own mortality, but it’s important to be realistic about your health status as you assess your investment options so you can choose the one that best suits your current circumstances and needs.

2. You Want Tax-Deferred Growth

Don’t let the term “tax-deferred growth” phase you—it’s just a fancy way of saying the earnings on your contributions will grow tax-free until you withdraw them, compounding your gains. (In even simpler terms: It’s a good thing.)

Annuities provide tax-deferred growth, which also means the interest returns you’ll see as the annuity grows won’t count toward your taxable income. Instead, those earnings are “paid” to your annuity tax-free until withdrawn, and subsequent interest payments—also tax-free until withdrawn—are based on the increased annuity value.

When the annuity payments begin, they’ll be a mixture of tax-deferred earnings and a return of your original payment (which you’ve already paid taxes on). Therefore, when it comes to taxation, annuities use the exclusion ratio, which helps determine how much of an annuity payout is untaxed, and how much will fall into your income tax brackets.

If you’re like many retirees, by the time you’re making withdrawals from your annuity, you may be in a lower income tax bracket than you were when you made the initial contributions. In that case, you’d effectively save on income taxes while also enjoying a higher annuity balance (due to tax-deferred growth)—which in return will yield higher annuity payments when you begin your withdrawals.

3. You Have a Low Risk Tolerance

For most people, risk tolerance decreases as age goes up: Picture a downward slope on the X-Y axis. But even if you’re on the younger side and have a lower risk tolerance, annuities could help provide financial security for you and your household.

As discussed, annuities can provide guaranteed income. That guaranteed income can help hedge against an income loss in retirement, supplement your current income, or simply provide peace of mind. And although lower risk usually means lower returns, earnings on an annuity may provide better returns than a money market fund, certificate of deposit, or high-yield savings account.

Simply put, an annuity may be that sweet spot for you if you are looking to park your funds in an investment vehicle with relatively high yields but far less risk than equity investments.

Although the payout structure of annuities is relatively simple, understanding the many different types of annuities, their features, and when to purchase one can be a bit more complex. Working with a financial planner with the experience and expertise to guide you through the process can offer you the priceless gifts of calm and clarity.

Here at Felton & Peel, we demystify complex financial scenarios, providing you with tranquility throughout your financial journey. We’re here to help—and your first consultation is free.