What Should You Ask Before Buying an Annuity?

What job should this annuity do?

An annuity is a contract with an insurance company. Depending on its terms, it may help accumulate savings, provide income, or both. It is generally intended for long-term goals and is not a substitute for readily accessible emergency savings.

Before comparing products, identify whether you need income now, income later, or a way to manage part of your retirement savings. Consider your other income sources, spending needs, and the amount you may need to withdraw unexpectedly.

Which type is it, and what is actually guaranteed?

Fixed, fixed indexed, variable, and registered index-linked annuities do not work the same way. Some offer contractual interest or principal guarantees; others expose you to investment losses. A market-linked name does not mean you directly own an index or receive its full return.

Ask which values are guaranteed and which are only illustrations. For an indexed product, ask about caps, participation rates, spreads, and whether those terms can change. An income benefit base may be used to calculate payments without being an amount you can withdraw as cash.

Insurance guarantees depend on the issuing insurer’s financial strength and claims-paying ability. They are not a promise from the agent and are not FDIC insurance. Ask how to evaluate the insurer as well as the contract.

What happens if I need my money early?

An annuity may limit withdrawals during a surrender-charge period. Some contracts allow a limited withdrawal without a surrender charge, but that does not necessarily mean the withdrawal is free of tax or has no effect on future benefits.

Ask for the surrender schedule and a written explanation of any market value adjustment. Discuss how a withdrawal would affect both your account value and any income or death benefits. Keep enough accessible money outside the contract for foreseeable needs.

What are the costs and income choices?

Costs vary by product. Optional riders may have charges, while other product costs may be reflected in crediting terms rather than a separately listed annual fee. Ask how the professional is compensated and what trade-offs come with each feature.

If you want income, ask when payments start, how long they last, and what happens when you die. Joint-life payments, a guaranteed payment period, and beneficiary features can change the amount of income. Find out whether the income decision can be reversed and how inflation could affect purchasing power.

Would a rollover or replacement serve my needs?

Moving retirement money is not automatically beneficial. An annuity inside an IRA does not add tax deferral beyond the IRA’s existing tax treatment. Its other benefits would need to justify its costs and restrictions.

Before a rollover or replacement, compare existing fees, benefits, withdrawal rights, and any surrender charges with those of the proposed contract. A new contract can start a new surrender period. Ask a qualified tax professional about the tax rules and potential penalties for your particular situation.

Bring this checklist to your conversation

Ask for the contract disclosures and enough time to review them. Before deciding, make sure you can explain:

• The purpose of the annuity in my overall retirement plan.
• Which benefits are guaranteed and which values can change.
• All charges, withdrawal limits, and potential adjustments.
• How income and beneficiary options affect payments.
• Why this option is suitable compared with keeping my current arrangement.
• The review-and-return period available under this contract and state law.