Coverage
Annuities
Turning a lump sum into income you cannot outlive.
- Fixed annuity
- A guaranteed interest rate for a set term
- Fixed indexed
- Interest linked to an index, with a floor
- Immediate
- Income starts within about a year
- Deferred
- Grows first, income starts later
In plain English
An annuity is a contract with an insurance company. You hand over a sum of money, either at once or over time, and in exchange the company agrees to pay you back on defined terms, often as guaranteed income for the rest of your life. That is the whole idea: an annuity solves the problem of not knowing how long you will live. Where a portfolio can run out, a lifetime income annuity cannot, as long as the carrier remains solvent.
Best for: People at or near retirement who want a predictable floor of income underneath their other assets.
How it works
Annuities, step by step
- 01
You fund the contract
With a lump sum, often a rollover from a retirement account, or with payments over time. The source matters for tax treatment, so it is worth getting right before the money moves.
- 02
The money grows tax deferred
Growth inside an annuity is not taxed each year. You are taxed when you take money out, and how much is taxable depends on whether the contract was funded with pre tax or after tax dollars.
- 03
You turn on income
At a date you choose, the contract converts to payments. You select the shape: single life pays the most, joint life continues for a surviving spouse, period certain guarantees a minimum number of years to your heirs.
- 04
The payments continue
With a lifetime option they continue as long as you live, whether that is eight years or thirty five. That guarantee is the product.
Straight answer
What it does well, and where it falls short
Every product on this site has both. Anyone who tells you otherwise is selling.
Strengths
- Income that continues for life, regardless of how markets behave
- Tax deferred growth during the accumulation years
- Principal protection available in fixed and fixed indexed contracts
- Removes the guesswork from how much you can safely spend each year
Trade-offs
- Your money is committed, and early withdrawals face surrender charges
- Fixed contracts may not keep pace with inflation without a rider
- Products can be complicated, and complexity hides costs
- Guarantees depend on the financial strength of the issuing carrier
Is this you?
Annuities usually makes sense when
If two or more of these describe your situation, this is worth a serious look.
- 01You are within about ten years of retiring
- 02You have savings but no pension and want to build your own
- 03Market swings near retirement keep you up at night
- 04You want to cover fixed expenses with guaranteed income and invest the rest freely
FAQ
Annuities questions
The ones that come up in nearly every conversation about this product.
01What is a surrender charge?
A fee for taking out more than the contract allows during the surrender period, which commonly runs five to ten years and declines each year. Most contracts let you withdraw around ten percent annually without penalty. If you might need the money sooner than the surrender period ends, that is a reason to size the contract differently, or to choose a different product entirely.02Are annuities safe?
Guarantees in an annuity are backed by the financial strength and claims paying ability of the issuing insurance company, not by the federal government. That makes carrier selection part of the decision, not an afterthought. New York also maintains a guaranty association that provides limited protection subject to statutory caps.03Should I put all my retirement savings into one?
Almost never. An annuity works best as the floor, covering your fixed monthly expenses so the rest of your portfolio can stay invested for growth and stay liquid for emergencies. Anyone recommending you move everything into a single annuity is worth a second opinion.
Related coverage
- Indexed Universal LifePermanent coverage with cash value linked to a market index, and a floor underneath it.Open
- Whole LifeA fixed premium and a guaranteed benefit that does not expire.Open
- Final ExpenseA smaller whole life policy built to cover a funeral and the bills that follow.Open
- Coverage calculatorGet to a real number before you talk to anyone.Open
Next step
See what annuities would cost you.
Real numbers from more than one carrier, based on your age and health rather than a national average. It takes about five minutes.
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This page describes annuities in general terms and is for education, not advice. Product features, riders, availability, and pricing vary by insurance company and by state, and your policy contract governs in every case. Read it, and ask about anything that is not clear. Full disclosures.