Start with structure and timing
Income may begin soon after purchase or at a later date. Fixed, fixed indexed, variable and registered index-linked structures have different ways of crediting value and different exposure to losses. They should not be treated as interchangeable.
A reference to an index does not mean you directly own that index or receive its full performance. The contract determines how values and benefits are calculated.
Read beyond the headline benefit
Ask about explicit fees, optional benefits, surrender charges, limits on withdrawals and other contract adjustments. Some costs are reflected in credited interest or limits on gains rather than a separate bill.
Check what a stated guarantee covers, the conditions attached to it and the financial strength of the insurer standing behind it. An annuity is not an FDIC-insured bank deposit. Some annuity types can lose value with the market.
Consider the fit with everything else you own
Compare access to money, potential income and beneficiary provisions with your broader needs. Ask how the contract complements your investments rather than evaluating it in isolation.
An annuity inside an already tax-deferred retirement account does not provide additional tax deferral. Obtain an explanation of the specific reason for using it and review the contract with an appropriately licensed professional before purchasing.
Take these into your next conversation
Questions worth asking
- What exactly is guaranteed, by whom and under which conditions?
- What happens if I need money earlier than expected?
- What are all of the costs and limits on growth?
- How is the person recommending this contract compensated?
Further reading
Investor.gov — Annuities ↗FINRA — Annuity types, costs and risks ↗External sources are provided for further education. Their inclusion does not imply endorsement of Evermont.
This article is for general education and is not individualized investment, insurance, tax or legal advice. Your circumstances and applicable rules matter. Consult appropriately qualified professionals before making financial decisions.