Annuities, explained
Retirement income and accumulation, in plain terms
An annuity is a contract with an insurance company that can grow money with tax deferral, turn savings into income you cannot outlive, or both. This guide covers how the main types work and what to watch for, so you can talk with an advisor from an informed place.
What an annuity does
In exchange for a premium, an insurance company agrees to credit interest, pay income, or both, under the terms written in the contract. Annuities are insurance contracts rather than bank deposits. They are not FDIC insured, and any guarantee depends on the issuing insurer's ability to pay claims. In return for those guarantees, annuities generally ask you to leave the money alone for a defined period.
Why people consider one
Grow with tax deferral
Interest can accumulate without being taxed each year.
Reduce market exposure
Fixed and indexed contracts are not directly invested in the market.
Create retirement income
Turn savings into payments that can be guaranteed for life.
Lock a rate for a term
Know what a set number of years will credit before you commit.
Provide for a spouse
Joint options can continue income to a survivor.
Annuity types
Each type solves a different problem. Explore the details on each page.
Fixed Annuity
A fixed annuity is a contract with an insurance company in which the insurer credits interest at a rate it declares.
Learn more →Fixed Indexed Annuity (FIA)
A fixed indexed annuity credits interest based on the movement of a market index, such as the S&P 500, subject to limits set in the contract.
Learn more →Immediate Income Annuity (SPIA)
A single premium immediate annuity, or SPIA, converts a lump sum into a stream of payments that usually begins within about a year.
Learn more →Multi-Year Guaranteed Annuity (MYGA)
A multi-year guaranteed annuity, or MYGA, credits a fixed interest rate that is guaranteed for the entire guarantee period you select, commonly three to ten years.
Learn more →Which type fits which goal
Do you want a known rate locked for a set number of years?
Look at a multi-year guaranteed annuity, or a fixed annuity if you prefer a declared rate.
Do you want some index-linked growth potential with a floor against index losses?
Consider a fixed indexed annuity, and read carefully how caps and participation rates limit crediting.
Do you need income starting now that continues for life?
An immediate income annuity converts a lump sum into payments, in exchange for giving up access to that lump sum.
What to check before you buy
- The surrender period length and the full surrender charge schedule
- How much you can withdraw each year without a charge
- Whether a market value adjustment applies to early withdrawals
- For indexed contracts, the guaranteed minimum cap or participation rate, not just the current one
- Every rider charge, and whether the rider is optional
- The financial strength ratings of the issuing insurer
Annuities and taxes
Growth inside an annuity is generally tax deferred, so interest is typically not taxed until you take money out. Withdrawals of gain are generally taxed as ordinary income, and amounts taken before age 59 and a half may be subject to an additional 10% federal tax. Treatment differs between qualified and non-qualified contracts. We are not tax advisors, so please confirm your situation with a tax professional.
How we work
We are an independent agency, so we help you compare contracts from the carriers we represent rather than promote a single company. We do not publish rates or caps here because they change frequently and vary by carrier, state, and deposit size. If an annuity is not the right fit for your situation, we will say so.
Annuities: frequently asked questions
What is an annuity?
An annuity is a contract with an insurance company. You pay a premium, and the insurer agrees to credit interest, provide income, or both, under terms set in the contract. Annuities are insurance contracts, not bank deposits, and they are not FDIC insured.
Are annuities investments?
The fixed, indexed, and immediate annuities described here are insurance contracts rather than securities. Your money is not invested directly in the stock market. A fixed indexed annuity uses an index only as a reference for calculating credited interest.
Can I lose money in an annuity?
Fixed, indexed, and MYGA contracts do not lose value from market declines. You can still receive less than you paid if you surrender early and surrender charges or a market value adjustment apply, or if rider charges reduce the value.
What is a surrender period?
It is the number of years during which withdrawing more than the contract's free amount triggers a surrender charge. Surrender periods and charge schedules vary by contract, so review the schedule before you buy.
Are annuity guarantees insured by the government?
No. Annuity guarantees are backed by the claims-paying ability of the issuing insurance company, not by the FDIC. State guaranty associations provide limited protection that varies by state and coverage limits.
This page is educational and is not insurance, financial, tax, or legal advice. Annuities are insurance contracts, not bank deposits. They are not FDIC insured and not bank guaranteed. Product availability, features, rates, caps, and provisions vary by carrier and state and are subject to change. Any guarantees are backed solely by the claims-paying ability of the issuing insurer. Withdrawals may be subject to surrender charges and a market value adjustment, and withdrawals taken before age 59 and a half may be subject to an additional 10% federal tax. No contract exists until it is issued and in force.
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