Plan for Tomorrow | What to know before you purchase an annuity
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What to know before you purchase an annuity

Sep 26, 2023, 2:31:52 PM | Reading Time: 6 minutes

If you’ve begun building a retirement plan or are looking to add more income and growth opportunities to your current portfolio, an annuity may be a good option. With life spans growing longer, having enough savings to last throughout retirement is becoming a top priority for many Americans. As you explore different solutions and prepare to meet with a financial professional, here are eight questions on annuities that you could ask to help determine how they may help you achieve your goals.

What are the different types of annuities?

“Much like insuring a home, car, or even your life, shielding your retirement income from loss should be top of mind. Annuities are financial products that can offer both protection for your savings from market loss and a guaranteed income stream” shares Kevin Mechtley, Vice President of Business Development and Chief Innovation Officer of Sammons Independent Annuity Group, a division of Sammons Financial Group. At its core, an annuity is an insurance product. It’s a contract between you and an insurance company where you make a lump sum payment or series of payments (known as premium) to the insurance company for a future guaranteed income stream. You can choose from a deferred or immediate annuity, depending on your needs and specific goals.

Immediate annuity

In exchange for a lump sum, your annuity will provide income payments for a set period. Typically, payments begin within a year or less of purchasing the contract.

Deferred annuity

With a one-time or recurring payment, you can purchase a deferred annuity that can begin providing an income stream at a later date. Common types of deferred annuities include:

Variable annuity

Value growth is linked to financial market performance, so you have the potential for higher growth but can also lose value if the market drops. 1

Fixed annuity

Value grows over time at a set interest rate, where your premium is protected from market fluctuations. Fixed index annuity (FIA) Growth is tied to the performance of an external index. FIAs protect premium from market downturns by flooring returns at zero.


When choosing an annuity that can fit your needs, it’s important to assess your risk tolerance, which can include your time horizon, need for income, and comfort level with market volatility. “The unprecedented volatility in the market over the past few years has highlighted the need to carve out a piece of a portfolio with more dependable income planning strategies,” shares Mechtley. “When you purchase an immediate annuity, fixed annuity, or fixed index annuity, you can feel confident that your money is protected.” With an immediate annuity, fixed annuity, or fixed index annuity, your money is protected from market volatility, so even if the market goes down, your premium will not decrease due to the market decreases. All guarantees are based on the claims-paying ability of the issuing insurance company. Due to this, it’s important to research the company issuing an annuity. Signs of strength like ratings form third-party agencies can help indicate that a company is stable. With a variable annuity, there is market exposure, so you could potentially lose money if there’s a market drop. In general, annuities are considered a versatile plan for an unpredictable future that can add growth potential and reliable income to your retirement portfolio.

When can I buy an annuity?

Depending on the product you chose, the age range usually falls between 40 and 80 years old.

What are some of the advantages and disadvantages of an annuity? 

“Annuities can offer many features that can help combat against income hurdles, such as providing inflation protection or triggering additional benefits for an unexpected health event, states Mechtley. “Just knowing that your annuity product can help provide income through the ups and downs of life can give peace of mind against the unknown.” Annuities offer many benefits that can supplement your overall retirement plan, but they may not be a good fit for everyone. Here are some pros and cons to keep in mind as you determine if an annuity is right for you. 


Annuity advantages Annuity disadvantages
Protection against market volatility and decreases Certain annuities may charge maintenance or rider fees
Ability to turn on guaranteed income and other features to help meet your specific needs Some annuities may charge fees or other adjustments to withdraw funds early (known as surrender charges2 and market value adjustments3)


How can I buy an annuity?

As you begin exploring retirement planning, speaking with a financial professional is a good first step. He or she can discuss your financial goals, risk tolerance, and review the options that match your needs. If you decide an annuity is right for you, your financial professional can submit your application and help you take care of any necessary paperwork. During your conversation, you’ll also be able to ask questions and gain a deeper understanding of how annuities work and what they can bring to your retirement portfolio.

Can I withdraw money from an annuity?

Some annuities have surrender charges2 and other adjustments for early withdrawals or fees for early withdrawals. Immediate annuities do not typically offer withdrawal options. Withdrawing money during the surrender charge period could lead to surrender charges, and prior to age 59 ½ may be subject to IRS penalties or taxation.1 Some annuities offer additional flexibility around withdrawal allowances.

What happens to my annuity if I die?

Many annuities offer a death benefit, so you can designate a beneficiary to receive your annuity payment(s) if you were to pass away. Your beneficiary commonly has options on how they would like to receive the annuity payment(s), including a lump sum or gradual payments over time. Some contracts also offer spousal continuance where your spouse becomes the new owner of your annuity.

Questions for my financial professional?

As you discuss your financial goals and your vision for retirement, you’ll likely have questions that your financial professional can help answer and provide further guidance. Consider including these questions in your conversation:

  • Are there optional riders?
  • What are the associated fees with this contract?
  • What are the ratings of the insurance company?
  • How do you help your clients manage different types of risk?
  • How often do you like to meet with your clients?
  • How are you compensated?

When creating a diversified portfolio, adding an annuity to your financial strategy can be a beneficial way to allow for growth potential and the ability to provide guaranteed income in retirement. With a holistic plan in place, you can rest assured that you’ll be able to cover your expenses and enjoy the retirement that you’ve worked so hard to create.

Fixed index annuities are not a direct investment in the stock market. They are long term insurance products with guarantees backed by the issuing company. They provide the potential for interest to be credited based in part on the performance of specific indices, without the risk of loss of premium due to market downturns or fluctuation. Although fixed index annuities guarantee no loss of premium due to market downturns, deductions from the accumulation value for optional benefit riders or strategy fees or charges associated with allocations to enhanced crediting methods could exceed interest credited to the accumulation value, which would result in loss of premium. They may not be appropriate for all clients. Interest credits to a fixed index annuity will not mirror the actual performance of the relevant index.

1Under current law, annuities grow tax deferred. An annuity is not required for tax deferral in qualified plans. Annuities may be subject to taxation during the income or withdrawal phase. Neither North American Company for Life and Health Insurance, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice. You should be advised to rely on your own qualified tax professional.

2A surrender during the surrender charge period could result in a loss of premium. Surrender charge structure may vary by state.

3A market value adjustment (also known as interest adjustment) is applied during the surrender charge (or market value adjustment) period to full surrenders and to any partial surrender in excess of the penalty-free amount. This adjustment may decrease or increase the surrender value depending on the change in interest rates since the annuity purchase date. Lower interest rates at time of issue may result in less opportunity for a positive market value adjustment in future contract years. In certain rate scenarios at the time of issue, it may not be possible to experience a positive market value adjustment. Market value adjustment may not be applicable in all states