Annuities & Retirement Income

Annuities solve a problem no other product does cleanly: how to turn a pile of money into an income you can't outlive. In exchange for a lump sum (or a series of deposits), an insurance company promises to pay you — for a set number of years, or for the rest of your life. That longevity guarantee is the whole point, and it's why a well-chosen annuity can be the floor under a retirement plan, letting the rest of your money stay invested for growth.

But 'annuity' covers wildly different products. A fixed annuity pays a set interest rate, like a CD from an insurer. A fixed-indexed annuity credits interest tied to a market index with a floor of zero — you don't lose principal to a down market, but your upside is capped. A variable annuity invests in sub-accounts with real market risk and real fees. And an immediate annuity starts paying right away. The right one depends entirely on whether your goal is safety, growth, or income now.

Where independent advice earns its keep is in the fine print: surrender periods, participation rates, caps, riders, and the difference between the flashy 'income account value' and the actual cash you can walk away with. We compare live rates across carriers, model your specific income need, and tell you plainly when a boring fixed annuity beats the product with the bigger brochure — or when you shouldn't buy one at all.

The Problem Annuities Are Built to Solve: Outliving Your Money

Retirement math has quietly changed. A 65-year-old today has a real chance of living into their 90s, which means a nest egg may need to last 25 or 30 years through good markets and bad. Pensions that once handled this job have largely disappeared, leaving most households to turn a lump sum into a paycheck on their own. That is genuinely hard, because no one knows how long they will live or how markets will behave along the way.

An annuity is, at its core, insurance against living a long time. You trade some money to an insurance company, and in return it promises income you cannot outlive. That is a legitimate and sometimes valuable thing. But annuities are also among the most mis-sold products in finance, so the honest question is never are annuities good or bad - it is whether a specific contract solves a specific problem in your plan.

We start by mapping your guaranteed income, your spending, and your other assets. If you want to see where the gaps are, our planning tools are a useful first step, and you can always reach out to talk it through.

The Income Floor: Covering Essentials Before Anything Else

One of the most useful ideas in retirement planning is the income floor. The concept is simple: your essential, non-negotiable expenses - housing, food, insurance, utilities, medications - should be covered by income that is guaranteed and will not stop, no matter what stocks do. Everything above that floor can be funded by more flexible assets that you draw on for travel, gifts, and the fun parts of retirement.

For many households, Social Security already forms a large part of this floor, which is exactly why the timing of when you claim matters so much. Our overview of claiming Social Security at 62, 67, or 70 walks through that decision in detail.

An annuity's job is to fill the gap that remains after Social Security and any pension. If your guaranteed income already covers essentials, you may need little or no annuity. If there is a shortfall, a modest amount of guaranteed lifetime income can let you spend the rest of your portfolio with far less anxiety. The floor is the framework; the annuity is one tool that may or may not be needed to build it.

The Main Types of Annuities, With Honest Pros and Cons

Annuity is an umbrella word for several very different products. Understanding the categories is the difference between buying a tool and being sold a package.

The types below trade off growth potential, downside protection, cost, and liquidity in different ways. There is no universally best one - only the one that fits a defined role in your plan.

• Fixed / MYGA (multi-year guaranteed annuity): pays a fixed rate for a set term, like a CD from an insurer. Pro: simple, predictable. Con: rate can lag inflation, and money is locked up during the term.
• Fixed indexed (FIA): principal is protected, and interest is credited based on an index like the S&P 500, subject to caps or participation rates. Pro: no market-loss years. Con: gains are capped and often exclude dividends, so returns trail the market.
• Registered index-linked (RILA / buffer annuity): offers higher potential upside than an FIA in exchange for accepting some limited losses via a buffer or floor. Pro: more growth. Con: you can lose money, and terms are complex.
• Immediate / deferred income (SPIA / DIA): you hand over a lump sum for a guaranteed lifelong paycheck, now (SPIA) or starting later (DIA). Pro: highest income per dollar, dead simple. Con: usually irreversible, little or no liquidity.
• Variable: your money is invested in market subaccounts. Pro: full market upside. Con: full downside too, plus layered fees that are often high - the type that earns annuities their worst reputation.

Income Riders (GLWB): How the Paycheck Actually Works

Many fixed indexed and variable annuities are sold with an optional add-on called a Guaranteed Lifetime Withdrawal Benefit, or GLWB. This is where a lot of confusion - and some misleading sales pitches - lives, so it is worth slowing down.

A GLWB creates a second number inside your contract called the benefit base. During the years before you turn on income, that benefit base may grow at a stated roll-up rate, often around 5-7% simple interest. Important: the benefit base is not cash you can walk away with. It exists only to calculate your future income. When you switch income on, you receive a set percentage of the benefit base - commonly 4-6% depending on your age - every year for life, even if the underlying account eventually runs to zero.

So a 7% roll-up does not mean 7% growth on your money. It means the figure used to size your lifetime withdrawal grows at that rate. That is a real benefit for guaranteed income, but it is not an investment return, and any advisor who blurs the two is not being straight with you. According to the SEC's investor.gov, these guarantees are only as strong as the insurer backing them.

The Costs and Trade-Offs You Must See Clearly

Every guarantee an annuity offers is paid for somehow. The costs are not always obvious, which is exactly why they deserve a plain-English accounting before you sign anything.

The most important trade-off is liquidity. Money in an annuity is generally not money you can grab freely, and pulling out early can cost real dollars through surrender charges.

• Surrender charges: withdraw more than the allowed amount during the surrender period (often 5-10 years) and you pay a penalty. A typical seven-year schedule steps down roughly 8%, 7%, 6%, 5%, 4%, 3%, 2%, then 0%.
• Rider fees: a GLWB usually costs around 0.75%-1.25% per year, charged against your account value whether markets rise or fall.
• Caps and participation rates: on indexed products, your upside is limited, and the insurer can often lower caps in future years.
• Variable annuity fees: mortality and expense charges plus subaccount fees can stack to 2%-3%+ per year, a serious drag over time.
• Liquidity limits: most contracts allow penalty-free withdrawals of only about 10% of value per year during the surrender period.

When an Annuity Fits - and When It Does Not

The most honest thing we can tell you is that annuities are right for some people and wrong for others, and a lot depends on money you have not yet spent and income you already own.

An annuity may fit when you have a real gap between guaranteed income and essential expenses, when longevity runs in your family, when you value predictability over the last few points of return, and when you are using only a portion of your savings - not all of it.

An annuity is usually a poor fit for money you will need soon, for an emergency fund, or for anyone who already has enough guaranteed income to cover their floor. It is also wrong if the surrender period outlasts your likely time horizon, or if the product is so complex that even the person selling it struggles to explain it. Chasing tax deferral inside an already tax-advantaged account like an IRA rarely adds value on its own. If you are still building savings, comparing your progress against the median retirement savings by age can clarify whether guaranteeing income is even the right priority yet.

2026 Context: Record Sales and What Is Driving Them

Annuities are having a moment. According to LIMRA, total U.S. retail annuity sales rose about 7% to a record $464.1 billion in 2025 - the fourth consecutive year of record sales, with the fourth quarter alone topping $117 billion.

Several forces are behind the surge: higher interest rates made fixed and indexed guarantees more attractive than they had been in years, an aging population is anxious about outliving savings, and demand for protected lifetime income keeps climbing. Indexed products - registered index-linked and fixed indexed annuities together - made up roughly 45% of sales in 2025, nearly double their share of a decade ago.

Booming sales are not proof that annuities are right for you. They reflect market conditions and, frankly, aggressive distribution as much as genuine need. We unpack this in why annuity sales hit a record. The takeaway: strong sales are a reason to be more careful, not less, because more selling pressure means more chances to be steered into the wrong product.

How Annuities Are Taxed

Taxes on annuities depend heavily on whether the money is qualified or non-qualified, and getting this wrong can create nasty surprises. This is general education, not tax advice - please confirm specifics with a tax professional before acting.

Inside a non-qualified annuity (bought with already-taxed dollars), growth is tax-deferred until you withdraw. When you do, gains come out first and are taxed as ordinary income, not at lower capital-gains rates. If you annuitize into a lifelong stream, an exclusion ratio applies - part of each payment is a tax-free return of your principal and part is taxable earnings, until your basis is used up. Withdrawals before age 59 1/2 can also trigger a 10% IRS penalty on the taxable portion.

A qualified annuity held in an IRA or 401(k) is taxed like the account around it - contributions may have been pre-tax, so withdrawals are generally fully taxable and subject to required minimum distributions. Because ordinary-income treatment can matter a lot, annuities often work best alongside other tax planning; see our tax-incentive strategies, and for tax-advantaged growth with life insurance, our indexed universal life page. The IRS covers the mechanics in Publication 575.

The Free-Look Period and How We Compare Carriers

Every annuity comes with a free-look period, typically 10 to 30 days depending on your state, during which you can cancel the contract and get your money back with no surrender charge. Use it. Read the actual contract, not the brochure, and if anything does not match what you were told, walk away - that protection exists precisely because these products are complex.

Because an annuity is a long-term promise, the financial strength of the insurer matters as much as the headline rate. As an independent advisory, we are not captive to any one carrier, so we compare guarantees, caps, participation rates, rider costs, surrender schedules, and independent financial-strength ratings across multiple insurers before recommending anything. Sometimes the honest recommendation is no annuity at all.

If you want a straight, no-pressure read on whether guaranteed income belongs in your plan - and if so, which type and how much - contact us or start with our retirement tools. You can verify any annuity concept independently at FINRA.

What this covers