Fifteen essential questions to ask before buying an annuity — covering fees, surrender charges, how your money grows, insurer strength, income guarantees, death benefits, and taxes — so you can do real due diligence before you sign.
An annuity is a contract with an insurance company that can provide guaranteed income in retirement. For some retirees it's a useful tool; for others it's the wrong fit. The difference usually comes down to the details buried in the contract — details that aren't always front and center during a sales conversation. Use the 15 questions below as a due-diligence checklist. Ask them before you sign anything, and get the answers in writing so you can review them on your own time.
Annuities can carry several layers of cost: administrative fees, mortality and expense charges, investment management fees (in variable annuities), and charges for optional riders. Ask for a complete, itemized list. Total annual costs can range from very low to well over 3% depending on the product.
Most annuities have a surrender period — often 5 to 10 years — during which withdrawing more than a set amount triggers a penalty. Ask how long it lasts and what the penalty is each year. This is one of the most important numbers in the contract.
Many contracts allow a free withdrawal (commonly around 10% per year) during the surrender period. Know that number before you commit money you might need.
Ask directly whether the person is paid a commission, a fee, or both, and roughly how much. This isn't rude — it's relevant. It helps you understand any incentives behind the recommendation.
Fixed, fixed index, variable, immediate, deferred — each behaves very differently. Make sure you can state in plain words which type you're being offered and why it fits your situation.
For a fixed annuity, ask the guaranteed rate. For a fixed index annuity, ask how the index credit is calculated and about caps, participation rates, and spreads that may limit your gains. For a variable annuity, ask what you're invested in and the associated risk.
Some annuities protect principal from market downturns; others (like variable annuities) do not. Get a clear yes or no, and understand the trade-off between protection and growth potential.
Ask whether rates, caps, or participation rates can be adjusted after purchase, and what the contractual minimums are. Some features are guaranteed for life; others can change.
Income riders, death benefit riders, and long-term-care features can add value — and cost. Ask which are included, which are optional, and what each one adds to your annual fees.
Clarify whether income starts immediately or at a future date, how the payout is calculated, and whether it's fixed or can change. Ask to see the actual income figures in writing.
Annuity guarantees are backed by the issuing insurance company, not the federal government. Ask what specifically stands behind the promised income.
Beyond the surrender charge, ask whether there are exceptions for situations like a nursing-home stay or terminal illness — many contracts waive penalties in those cases.
Because the guarantees depend on the insurer, its financial strength matters. Ask for the company's ratings from independent agencies such as A.M. Best, Moody's, or S&P, and look for strong, stable ratings.
Ask whether your beneficiaries receive the remaining value, a death benefit, or nothing once income payments end. The answer varies significantly by contract and can be a deciding factor.
Annuity earnings generally grow tax-deferred, and withdrawals are typically taxed as ordinary income — and a withdrawal before age 59½ may carry an additional tax. Ask how this specific contract will be taxed in your situation, and consider reviewing it with a tax professional.
Once you have the responses in writing, step back and weigh them. A few signs the annuity may be appropriate for you: the fees are reasonable and clearly disclosed, the surrender period fits your timeline, the insurer is financially strong, and the way your money grows matches your comfort with risk. Signs to slow down: vague answers, pressure to decide quickly, fees that are hard to pin down, or a surrender period longer than you're comfortable locking up your money.
There's no rush. A reputable agent will welcome these questions and give you time to review the contract — many states also provide a free-look period (often 10 to 30 days) after purchase during which you may cancel for a refund. Ask whether that applies to you.
Before signing, some retirees choose to have the proposed annuity reviewed by a fiduciary advisor or another professional who is not paid to sell it. An independent professional review can confirm whether the product fits your broader retirement plan — or surface concerns worth discussing.
An annuity can play a valuable role for some retirees, but only when it's the right product, from a strong company, at a fair cost, and matched to your goals. These 15 questions help you see whether that's the case before you commit.
This article is for educational purposes only and is not financial, tax, or investment advice. Annuity features, costs, guarantees, and tax treatment vary by product and by individual situation, and guarantees are subject to the claims-paying ability of the issuing insurer. Consider consulting a licensed financial professional before making any decision.
Fixed index annuity vs variable annuity compared for 2026 — how each grows, fees, principal protection, and which is safer for retirement based on your timeline and risk tolerance.
When does buying an annuity make sense — and when does it not? An honest breakdown of who benefits from guaranteed lifetime income, who should pass, and a decision framework to protect yourself.
Annuity vs CD for retirement income in 2026 — how each works, the tax and safety differences, and when a CD or a fixed annuity (MYGA) may be the better fit for your money.