An annuity is a contract with an insurance company designed to turn savings into reliable income, often for retirement. Here's what that actually means, in plain English.
The basics before we get into the different types.
You contribute funds — either as a lump sum or over time — and in exchange, the insurance company agrees to make payments back to you, starting now or at a future date you choose.
Predictable retirement income, protection from market downturns depending on the product, and tax-deferred growth while your money stays in the contract.
They're not a get-rich-quick investment, not a stock or mutual fund, and not built for short-term cash needs. Early withdrawals can trigger surrender charges and tax penalties.
Used the right way, an annuity is meant to help protect principal and provide steady income later — one piece of a retirement plan, not the whole plan.
Every annuity works a little differently — here's the lineup.
An optional add-on available on some annuities that can provide a guaranteed stream of income starting on a future date you choose, usually for an additional cost.
Multi-Year Guaranteed Annuity — works a bit like a CD, locking in a fixed interest rate for a set number of years.
Fixed Index Annuity — returns are linked in part to a market index with downside protection on principal, a middle ground between growth potential and safety.
Single Premium Immediate Annuity — you contribute a lump sum and income payments begin right away, often for the rest of your life.
Deferred Income Annuity — you contribute now, and payments begin at a future date you choose, often timed to cover later retirement years.
Qualified Longevity Annuity Contract — a specific type of DIA that lets you defer a portion of required minimum distributions from qualified accounts like IRAs.
Straight answers, no jargon.
Annuities are insurance contracts, not market investments. Fixed and fixed-indexed annuities aren't directly exposed to stock market losses, and payments are backed by the claims-paying ability of the issuing insurance company — they are not bank products and are not FDIC-insured.
It depends on the type. Some annuities protect 100% of principal from market loss; others carry more risk. Fees, surrender charges, and early withdrawals can also reduce value. Choosing the right type for your goals matters — that's exactly what a consultation is for.
Most annuities include a death benefit that passes remaining value to your named beneficiaries, though the details vary by contract. We'll walk through your specific options together.
No — this page is educational only. Annuity guarantees are backed by the issuing insurance company, not the government, and features, rates, and availability vary by carrier, product, and state. Talk to your CPA or financial advisor about how an annuity fits your overall tax and investment picture.