What it is
An annuity is a contract with an insurance company. You fund it with a lump sum or a series of payments, and in return the insurer promises income — either right away or deferred to a date you choose — that can continue for as long as you live.
Fixed annuities credit a declared rate. Indexed annuities link growth to a market index with a floor. Variable annuities track investment sub-accounts and carry the highest fees.
What it does
- Guarantees a monthly payment for life, so your savings cannot run out.
- Defers tax on the growth until you begin taking distributions.
- Adds options such as cost-of-living increases, a joint payout that also covers a spouse, or a period certain.
- Can include riders for long-term care or a death benefit for your beneficiaries.
- Turns a lump sum, such as a 401(k) rollover or an inheritance, into dependable paychecks.
Who it fits
- People within roughly five years of retirement who want a portion of savings converted into guaranteed income.
- Households where one spouse's income stops at retirement and essentials still must be covered.
- Anyone who wants a floor under their cost of living that markets cannot remove.
Things to weigh
- Money is usually locked in for a surrender-charge period, commonly five to ten years.
- Riders and contract fees reduce what you actually earn.
- The guarantee is only as strong as the insurance company behind it, so carrier strength matters.
- A level payout loses buying power to inflation unless an increase option is purchased.
- If a pension already covers your essentials, an annuity may be unnecessary.
Common questions
Can I get my money back?
Most contracts allow a limited free withdrawal each year, and after the surrender period ends the full value is available. Access before then typically carries a charge, so the timeline matters as much as the rate.
Should I start payments now or later?
An immediate annuity begins paying within about a year; a deferred annuity grows first and starts later. The right answer depends on when your other income ends and how much you want guaranteed.
What happens if I die early?
Payout choices decide this. A period certain or a refund feature ensures a beneficiary still receives money; a straight life-only payout stops at your death in exchange for the highest monthly amount.
Not sure if annuities is right for you?
A consultation takes about twenty minutes, costs nothing, and looks at your actual situation before anything is recommended.
Also worth a look
Term Life Insurance
Affordable coverage for a specific period, providing essential protection when your family needs it most. Perfect for covering mortgages, education expenses, and income replacement during your working years.
Whole Life Insurance
Permanent coverage that lasts your entire life, with premiums that stay the same and a cash value that builds on a guaranteed schedule. The most predictable form of permanent protection there is.
Indexed Universal Life
A permanent policy with room to adjust premiums and coverage as life changes. Cash value growth is tied to a stock index with a floor, so a market drop does not subtract from your account.