A good place to start is understanding what the bonus actually applies to. An annuity bonus is typically an upfront percentage credit—often advertised in ranges like 5% to 20%—added when you fund a new fixed indexed annuity. For example, if someone deposits $500,000 into a contract that offers a 10% bonus, the insurer may credit an additional $50,000 on day one. The key detail is where that $50,000 is credited and what it can be used for. Some bonuses increase the value used to calculate guaranteed lifetime income, while others increase the accumulation value that can potentially be withdrawn or left to beneficiaries. Those are very different outcomes, even when the headline bonus percentage is identical.

That’s why we encourage people to treat “bonus” as a starting point, not the deciding factor. Before you choose any bonus annuity, it’s worth reviewing the tradeoffs that might come with it. In some contracts, the bonus is paired with a longer surrender schedule. In others, the bonus is offset by lower crediting terms (like reduced caps or participation rates) or higher rider charges if you add a lifetime income option. The goal isn’t to avoid bonuses. The goal is to choose a bonus structure that supports what you actually want the annuity to do—income, accumulation, legacy, or a blend of the three.

Different Types of Bonuses

Most bonus annuities fall into two main categories, and knowing the difference will immediately clarify why some bonuses feel “real” while others feel confusing. Here are the two common bonus types and what they typically affect.

Income Value Bonus: This type of bonus increases the value used to calculate lifetime income, but it usually does not increase the cash value you can surrender for a lump sum. In practice, that means the bonus may improve the projected income numbers on the illustration (especially when paired with a lifetime income rider), but it may not increase what you can walk away with if you cancel the contract early. Income-value bonuses can be useful for people whose primary objective is guaranteed income later, especially when the timeline is long enough to justify the tradeoffs.

Account Value Bonus: This type of bonus is credited to the accumulation value (the account value) and is more likely to be relevant if your focus is growing funds conservatively or leaving money to beneficiaries. Account value bonuses can be more tangible because they impact the value you see as your “account,” though surrender charges and policy terms still control what you can access in the early years. Depending on the contract, some or all of the bonus may be subject to vesting rules, meaning it becomes fully yours over time rather than immediately.

Beyond those two main categories, you’ll also see bonuses structured as roll-ups, step-ups, or enhanced payout features that only apply under certain conditions. Some contracts offer a roll-up rate on an income base used for future payout calculations. Others offer enhanced payout factors at specific ages. These designs can be powerful when they align with your retirement income plan, but they’re also where many people get misled by illustrations that look great in the “income column” while the “cash value column” grows more slowly. That’s why reviewing the underlying crediting strategy and rider costs matters as much as the bonus itself.

If you want a deeper look at the tradeoffs and decision points, this breakdown on bonus annuity pros and cons is a helpful next step. The short version: the bonus is only “good” when it improves the outcome you care about more than the costs required to offer it.

Where the “bonus” actually shows up in the contract

One of the most important practical questions is where you’ll see the bonus and when it becomes meaningful. Some annuities show the bonus clearly in the income base (used for calculating future lifetime income) but not in the surrender value. That can be fine if you’re committed to keeping the annuity long enough to turn that income base into real income payments. But if you want flexibility—meaning you might take larger withdrawals, reposition the annuity later, or keep the option to surrender—then an income-only bonus may not help you the way you expect.

Other annuities credit the bonus to the account value but apply surrender charges that can reduce access in the early years. In that situation, the bonus may still be valuable, but you have to be realistic about time horizon. The more important the bonus is to the decision, the more important it is to confirm how long you’re expected to keep the contract to “earn” the full benefit of it.

We typically evaluate bonus annuities by asking three questions: What is the primary goal (income, accumulation, or legacy)? What is the intended time horizon? And how much liquidity does the client need along the way? Once those three points are clear, it becomes much easier to tell whether the bonus is truly additive or simply a marketing lever that shifts value from one column of the illustration to another.

Are bonuses always a good idea?

Not always. Bonuses can be attractive, but they often come with tradeoffs that matter more than the headline number. A higher bonus may be paired with lower caps, a higher spread, reduced participation rates, or longer surrender periods. In other cases, the bonus is tied to an optional rider with ongoing charges, meaning you’re paying for the feature every year. That isn’t automatically a problem—some riders can be worth the cost—but it should be part of a clear decision, not an afterthought.

One common mistake is choosing a bonus annuity simply because the day-one credit “feels” like a win, even though the long-term crediting strategy is weaker than non-bonus alternatives. Another mistake is assuming the bonus applies to the value you can withdraw, when in reality it only affects an income calculation base. The best way to avoid both is to compare multiple contracts side by side and focus on the outcomes that matter: projected income at your intended start age, realistic accumulation growth under reasonable assumptions, liquidity rules, and what happens if plans change.

If your objective is guaranteed income, you’ll usually evaluate the bonus through the lens of payout potential. That means looking at the income base growth, rider charges, and payout factors. If your objective is conservative growth with principal protection, you’ll focus more on account value, crediting options, and surrender value behavior. If your objective is legacy planning, you’ll consider beneficiary rules and how the annuity behaves in different timing scenarios. The bonus can support any of those goals, but only when the underlying design fits the strategy.

How bonus annuities fit into a broader retirement plan

Most people don’t buy an annuity in isolation. They buy it as part of a larger plan that may include Social Security timing, pensions, IRAs, brokerage accounts, and risk-managed allocation decisions. In that context, a bonus annuity can serve specific roles. For example, it can accelerate the income base used for a future lifetime payout, which may help cover fixed expenses later. Or it can improve early accumulation values in a principal-protected strategy, depending on the contract design. Either way, the “right” annuity bonus is the one that complements what the rest of the plan is already doing.

It can also be helpful to think about time horizon and sequence-of-returns risk. For retirees who are approaching their distribution years, volatility early in retirement can create long-term damage when withdrawals occur during down markets. Fixed and fixed indexed annuities can reduce that stress by creating contractual guarantees. In that framework, the bonus can be seen as an incentive to commit funds to a longer-term guarantee structure. Again, it’s not free—there’s always a contract tradeoff—but it can be an intelligent trade when it improves retirement stability.

Comparing rates and bonus options (keep these tools)

How to evaluate a bonus annuity the right way

If you’re considering a bonus annuity, the most productive approach is to evaluate it like an engineer instead of a shopper. Start with what you need the annuity to do: generate lifetime income, preserve principal, create predictable growth, or support a legacy plan. Then examine how the contract delivers that result: crediting options, rider charges, income base rules, surrender schedules, and withdrawal provisions. When you do it in that order, the bonus becomes a useful feature—because you can see whether it improves the outcome you care about or simply shifts value around.

Finally, compare more than one option. Bonus annuities vary widely, and “10% bonus” can mean very different things depending on the carrier. A side-by-side comparison often reveals that a smaller bonus with stronger crediting terms can outperform a larger bonus with weaker long-term mechanics. That’s why the best decision usually isn’t based on the bonus percentage alone—it’s based on the total contract design and how well it fits your retirement timeline.