What Questions to ask when Researching Annuities

When researching annuities, one of the most important steps is asking the right questions before purchasing a contract. Annuities can be powerful retirement tools, but they must align with your retirement timeline, income needs, and financial goals. Understanding what to ask helps ensure that you select a contract designed for your specific situation rather than simply purchasing the first product you encounter. Whether you are comparing immediate income annuities, fixed annuities, or indexed annuities, asking thoughtful questions clarifies how each contract works and how it will support your long-term financial security — or reveal where it falls short.

Retirement planning today looks very different from the pension systems many previous generations relied on. Instead of receiving guaranteed income from employers, most retirees now build their own income systems using savings, Social Security benefits, and financial tools such as annuities. A 2025 Goldman Sachs Retirement Survey found that 58% of working Americans believe they will outlive their retirement savings — which reflects how significant the income certainty problem has become and why the questions you ask before purchasing an annuity matter more than ever. If you are exploring pension alternatives to fill the income gap left by the decline of employer pensions, understanding the right questions to ask about annuities helps you determine whether these contracts belong in your retirement strategy and which type best matches your specific objectives.

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Key Questions to Ask When Researching Annuities

Before examining each question in depth, the table below maps the core questions you should ask — and what each one reveals about a contract — so the evaluation framework is clear before you begin comparing specific products.

What Are My Retirement Goals?

Your retirement goals form the foundation of every financial decision you make — including whether an annuity belongs in your strategy and which type best serves the plan. Retirement means different things to different people. Some individuals envision extensive travel, relocating to a new state, or purchasing a second home. Others hope to spend more time with family, volunteer in their communities, or pursue interests that were difficult to explore during full-time employment. Clearly defining what you want your retirement to look like helps determine how much income you will need, how stable that income must be, and how much flexibility you want to maintain over a potentially decades-long retirement.

If your retirement lifestyle depends on consistent cash flow to cover housing, travel, healthcare, and daily expenses, an annuity can serve as a reliable income base. If your goals involve maintaining a large investment portfolio with growth as the primary objective, you may prefer to combine a smaller annuity allocation with other income-producing assets. Taking time to define these goals before comparing any product ensures your retirement strategy supports the lifestyle you envision rather than simply what a product illustration shows. For retirees who prioritize stability as the foundation of their income plan, our resource on annuities for conservative investors addresses the structures most commonly used to preserve capital while creating dependable retirement income.

When Do I Expect to Retire and How Long Might I Live?

The timing of your retirement significantly influences the type of annuity that may be appropriate. Someone planning to retire in five years might prioritize annuities designed to accumulate interest before income begins. Someone who is already retired may instead need income-focused annuities that begin making payments immediately or within a short deferral window. This timing also helps determine the appropriate balance between growth and income, and how much of the retirement portfolio should be in guaranteed vehicles versus market-dependent ones.

Longevity risk — the possibility of living longer than expected and exhausting savings — is one of the biggest financial risks retirees face today. Many retirees spend 20 to 30 years or more in retirement, and the last years of a long life are typically when healthcare costs are highest and earning ability is lowest. Annuities are specifically designed to address longevity risk because certain contract types provide income that continues for life regardless of how long that life lasts. The retirement annuity calculator provides a starting point for modeling how much guaranteed income different premium amounts can generate across different income start ages — which helps calibrate both the timing and sizing decisions before comparing specific carriers or products.

Will I Need Supplemental Retirement Income?

Most retirees rely on multiple income sources to support their retirement lifestyle. Social Security benefits often form the foundation of retirement income, but they rarely cover all essential expenses — housing, healthcare, travel, and daily costs frequently exceed what Social Security provides alone. Traditional pensions have become increasingly rare in the private sector, and most retirement accounts require the owner to manage their own withdrawal rate — with no guarantee that the portfolio sustains income for 30 or more years.

Annuities help fill the gap between essential expenses and existing guaranteed income sources by providing predictable payments that continue regardless of market conditions. The practical starting point is calculating the income gap: add up expected Social Security benefits and any pension income, then compare that total to projected monthly expenses. If guaranteed income falls short of essential costs, an annuity sized to close that gap creates an income floor that makes the rest of the retirement portfolio far more resilient. Understanding this income gap before comparing products is what separates productive annuity conversations from ones that begin with product features before the planning need is clear. Our broader overview of pension alternatives for those without employer-sponsored income explains how different structures can replace the predictability that pensions once provided.

Do I Want Growth Potential or Certainty?

Some retirees prefer to maintain growth potential for a portion of their assets even after they stop working. Others prefer the certainty of a stable, predictable return. Understanding your comfort level with market risk and rate variability helps determine which annuity structures align with your planning style. Fixed annuities — including multi-year guaranteed annuities — offer a declared interest rate for the full contract term, providing complete certainty about what the account will grow to. Fixed indexed annuities offer the potential for interest growth tied to a market index, while protecting principal from index losses in negative years. That combination appeals to retirees who want some growth potential but prefer protection against market downturns — a balance that neither a CD nor a stock portfolio can replicate in the same structure.

The choice between certainty and growth potential also affects how an annuity interacts with other retirement assets. A retiree who allocates a portion to a fixed annuity for certainty may be able to keep remaining assets in more growth-oriented positions, knowing the annuity handles the stable income requirement. Evaluating how much growth versus how much certainty you want within your retirement strategy helps determine how annuities complement — rather than duplicate or conflict with — other components of the plan. Our resource on the benefits of annuities across product types provides a framework for comparing these trade-offs before selecting a specific structure.

What Are the Surrender Charges and Surrender Period?

Most annuities include a surrender period during which large withdrawals trigger fees known as surrender charges. These charges typically start at 7%–10% or more of the withdrawal amount in the first year and decline on a defined schedule — often 1% per year — until they disappear entirely at the end of the surrender period. Understanding the full surrender schedule before purchasing is essential, because mismatching the surrender period to your actual liquidity needs is one of the most common and costly annuity planning errors.

Surrender charges exist because they allow insurance companies to offer higher interest rates, income benefits, or other contract features — the longer the surrender period, the more the carrier can commit to competitive crediting terms. As long as the annuity is aligned with your long-term timeline and you maintain adequate liquid reserves outside the contract, the surrender period typically poses no practical problem. What creates problems is placing funds needed within five years into a seven-year surrender contract, or failing to account for the free withdrawal provision — which most contracts set at 10% of account value annually without penalty. Our resource on annuity surrender schedules and annuity free withdrawal rules explains how these provisions work and what to verify before signing any contract.

What Are All the Fees and Expenses?

Annuity fees vary significantly depending on the contract type and the optional features selected. Many traditional fixed annuities and MYGAs carry minimal fees — the interest rate is simply declared and credited without a fee deduction. Fixed indexed annuities typically have no base contract fee either, though they use crediting caps, participation rates, and spreads as implicit pricing mechanisms that determine how much of the index gain is credited. When optional riders are added — particularly lifetime income riders — annual rider fees of roughly 0.90%–1.25% are deducted from the account value, which reduces net accumulation even while the income benefit base may continue to grow at a guaranteed roll-up rate.

Understanding the full fee structure before purchasing is essential because fees reduce both net growth and net income over time. A product illustration that shows an attractive income benefit base growth rate or a high cap rate may look less compelling once the annual rider fee impact on actual account value is modeled across the intended holding period. Asking for a complete breakdown of all fees — administrative, mortality and expense charges if applicable, rider fees, and any other recurring costs — allows a fair comparison between products. Understanding the drawbacks of annuities alongside their benefits ensures the purchase decision is informed by the full picture rather than only the illustrated upside. Annuities are also commission-based products — asking whether the advisor earns a commission and what steps exist to prevent conflicts of interest is a reasonable and appropriate question for any buyer.

Will I Have Access to My Money if I Need It?

Although annuities are designed for long-term retirement planning, most contracts include provisions that allow limited withdrawals without surrender penalties. The most common is the free withdrawal provision — typically set at 10% of account value per year — which allows meaningful access to funds during the surrender period without triggering charges. Beyond the standard free withdrawal provision, many annuities also include special access provisions that waive surrender charges entirely in qualifying circumstances: terminal illness, disability, confinement in a nursing facility, or other qualifying long-term care events. These waivers vary by carrier and contract, so verifying them before purchase ensures appropriate financial flexibility if unexpected circumstances arise.

The practical planning implication is this: annuities work best when the funds allocated to them represent assets that are genuinely earmarked for retirement income — not funds that may be needed for emergencies, short-term expenses, or opportunities within the surrender period. Maintaining a separate liquid cash cushion outside the annuity ensures the surrender provisions never become a practical constraint. Reviewing resources such as how an annuity works after death alongside the liquidity provisions ensures the contract works as expected both during your lifetime and for beneficiaries after it.

Is the Insurance Company Financially Strong?

An annuity’s guarantees are only as reliable as the insurance company standing behind them. Every contractual promise — the guaranteed income amount, the minimum interest rate, the death benefit, the income rider roll-up rate — is backed by the claims-paying ability of the issuing carrier. This is why evaluating carrier financial strength ratings from independent agencies such as AM Best, S&P, Moody’s, and Fitch is a non-negotiable step before purchasing any annuity. These ratings assess the insurer’s long-term financial stability, reserve levels, and historical ability to meet policyholder obligations.

Strong insurance companies typically maintain high capital reserves and long track records of meeting policyholder obligations through multiple market cycles and economic environments. If a carrier fails, state guaranty associations provide a backstop — but only up to the state’s coverage limits, which may not fully cover large contract values. Choosing a financially stable, highly rated carrier helps ensure that your annuity income remains dependable throughout retirement, even if that carrier offers a slightly lower rate or less aggressive crediting terms than a lower-rated competitor. The discipline of comparing carrier strength alongside product features — not just rate and bonus numbers — is one of the most important habits that separates informed annuity buyers from those who focus exclusively on illustrations.

Is the Advisor Helping Me Understand My Goals — or Just Selling a Product?

The final and often most important question involves the quality of guidance you receive during the decision-making process. A knowledgeable advisor should take the time to understand your financial situation, retirement goals, risk tolerance, and long-term income needs before recommending specific products. Rather than leading with interest rates, bonus amounts, or product illustrations, a good advisor starts with the planning problem — what income gap needs to be filled, what time horizon the contract must serve, and how the annuity fits within the broader retirement income plan alongside Social Security, investment accounts, and other resources.

Annuities are among the highest-commission products in financial services, which creates a natural conflict of interest that buyers should understand. Asking directly whether the advisor is a fiduciary — legally required to recommend what is best for the client rather than what pays the most commission — is a reasonable and important question. At Diversified Insurance Brokers, we compare products across dozens of top-rated carriers and start every conversation with objectives rather than product features. We do not push products with high commissions or unnecessary complexity. Whether you are evaluating an annuity for the first time or looking to understand how to use an annuity in retirement effectively within a plan you already have, the value of independent, carrier-agnostic guidance cannot be overstated in a product category where the complexity of the product and the commission structure of the sale too often push buyers toward poorly matched contracts.

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