Annuities

Planning for retirement income

Retirement changes the job of your money. Instead of focusing only on accumulation, you may need to coordinate Social Security, pensions, savings, retirement accounts, and insurance products to create dependable income while keeping enough money available for emergencies and changing needs.

Questions a retirement-income conversation should address

• Which essential expenses need dependable monthly income?
• How much income already comes from Social Security or a pension?
• How much money must remain liquid for emergencies, health costs, or opportunities?
• Is income needed now or at a future date?
• Should payments last for a specific period or for life?
• How important are beneficiary value and access to remaining contract value?

Accumulation and income are separate decisions

During accumulation, a fixed or fixed indexed annuity credits interest according to the contract. Later, income may be created through annuitization, scheduled withdrawals, or an optional income-benefit feature, depending on the product. These methods are not interchangeable and can affect liquidity, beneficiary value, fees, and guarantees differently.

Protecting an income floor

Some retirees use dependable sources such as Social Security, pensions, and annuity income to cover essential expenses while keeping other assets available for flexible spending and growth. The appropriate balance depends on household needs and risk tolerance.

Keep an emergency reserve outside the contract

Because annuities can have surrender periods and withdrawal limits, funds needed for near-term expenses generally should remain accessible. Review the free-withdrawal provision, required minimum distribution treatment, nursing-home or terminal-illness waivers when offered, and any market value adjustment.

An annuity is one possible retirement-income tool—not a complete financial plan. Tax, legal, investment, and estate-planning questions may require the appropriate licensed professional.

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Fixed annuities

A fixed annuity is an insurance contract that credits interest according to rates and guarantees stated by the insurer. Some contracts declare a rate for one period and then renew at a new rate, while multi-year guaranteed annuities may guarantee a stated rate for several years.

Why someone might consider a fixed annuity

• Predictable interest credited under the contract
• Protection from direct stock-market losses
• Tax deferral until money is withdrawn
• The ability to convert value into scheduled or lifetime income
• A beneficiary provision if death occurs before or during certain payout choices

What to compare beyond the advertised rate

• The length of the rate-guarantee period
• The minimum guaranteed rate and how renewal rates are set
• The surrender-charge schedule and annual free-withdrawal amount
• Any market value adjustment or interim value adjustment
• Income options, death benefits, riders, and rider costs
• The financial strength and claims-paying ability of the insurer

Liquidity is the central tradeoff

In exchange for contractual guarantees, the insurer may restrict withdrawals during a surrender period. Taking more than the free-withdrawal amount can reduce principal through surrender charges or adjustments. A fixed annuity should generally be funded with money that is not expected to be needed immediately.

Tax treatment

Interest is generally tax-deferred and taxable when withdrawn. Withdrawals before age 59½ may also be subject to an additional federal tax penalty. Placing an annuity inside an IRA or other tax-deferred retirement account does not create additional tax deferral; the insurance features must provide the reason for using it.

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Fixed indexed annuity strategies

A fixed indexed annuity is an insurance contract that credits interest based in part on the performance of an external index. You do not own the stocks or securities in the index, and credited interest will not normally equal the index’s full return. The contract uses a formula to determine how much interest is added.

Common crediting terms

• Participation rate: The percentage of an index gain considered in the calculation.
• Cap: The maximum credited rate for a measurement period.
• Spread or margin: An amount subtracted from the measured index gain.
• Point-to-point method: Compares the index at the beginning and end of a stated period.
• Fixed account: A separate option that may credit a declared fixed rate.

Protection and limitations

Fixed indexed annuities generally include a contractual floor that prevents negative index performance from producing negative credited interest for that index period. That does not mean the contract cannot lose value. Surrender charges, market value adjustments, withdrawals, taxes, and optional-benefit charges can reduce what you receive.

Crediting terms can change

Many contracts allow the insurer to reset caps, participation rates, spreads, or fixed-account rates at specified times, subject to contract guarantees. Compare minimum guarantees as well as current rates. Index calculations also commonly exclude dividends.

Why someone might consider an index strategy

A person may want the possibility of earning more interest than a traditional fixed-rate option while avoiding direct exposure to stock-market losses. The tradeoff is limited upside, a long-term surrender schedule, and a crediting formula that can be more complicated than a declared fixed rate.

Fixed indexed annuities are not direct stock-market investments. Ask for a contract-specific explanation using both positive and zero-credit examples before purchasing.

Educational resource: Investor.gov indexed annuity overview.

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Fixed annuity frequently asked questions

Are annuities investments or insurance?

An annuity is a contract issued by an insurance company. Some annuities use market-linked formulas, but fixed and fixed indexed annuities are insurance products and do not give you direct ownership of an index or its underlying securities.

Are annuities FDIC insured?

No. Annuity guarantees rely on the claims-paying ability of the issuing insurance company. State guaranty associations may provide limited protection if an insurer fails, subject to state law, limits, and eligibility rules; guaranty coverage should never be the reason for purchasing a product.

Can I lose money in a fixed or fixed indexed annuity?

Direct market declines generally do not reduce a fixed indexed annuity through negative index crediting, subject to contract terms. However, surrender charges, market value adjustments, withdrawals, taxes, penalties, and optional-feature costs can reduce contract value or the amount received.

What is a surrender period?

It is a stated number of years during which withdrawals above the contract’s free-withdrawal amount may trigger a charge. Charges generally decline over time, but schedules vary.

When do I pay taxes?

Earnings are generally tax-deferred until withdrawn and are usually taxed as ordinary income. Different ordering rules can apply to qualified and nonqualified contracts. Consult a qualified tax professional for advice about your situation.

What happens if I die?

Most contracts include a beneficiary provision, but the amount and payout choices depend on the contract, withdrawals, income elections, and riders. Confirm how the death benefit works before and after income begins.

Should all of my retirement savings go into an annuity?

Generally, retirement planning should preserve appropriate liquidity and diversification. An annuity may address a particular protection or income goal, but money needed for emergencies or near-term spending may be better kept accessible.

Do you offer variable annuities or RILAs?

No. Guided Brokerage focuses on fixed annuities and fixed indexed annuities.

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