Understand the Tradeoffs. Then Decide.
Learn how different annuities work, what they may protect, what they cost, and when another approach may fit better. Start with clear answers before making a retirement decision.
Educational information about annuities, retirement income, and the tradeoffs that matter before you make a decision.
“Annuity” is a category — not a single product. Different types have different objectives and tradeoffs.
Start With These Questions
Start with the questions worth asking before considering any type of annuity.
Why do some financial advisors say annuities are bad?
Understand the concerns behind the criticism, which products and practices they apply to, and what to ask before deciding.
Read the answer02What are the different types of annuities?
Different annuities serve different purposes. Compare how they handle income, growth, risk, and access to your money.
Read the answer03When might an annuity be the wrong choice?
Consider liquidity needs, costs, time horizon, and other options before deciding whether an annuity belongs in your plan.
Read the answerNobody Wakes Up Wanting an Annuity.
They wake up wanting what the right retirement strategy may help them accomplish.
The product isn't the starting point. The questions are:
- How much market risk am I comfortable taking in retirement?
- Where will my retirement income come from?
- What happens if markets decline while I'm taking withdrawals?
- Which money needs liquidity?
- Which money needs growth?
- Which money do I want protected from direct market losses?
- How much income needs to be predictable?
The question isn't simply, “Should I buy an annuity?”
It's, “What jobs does my retirement money need to perform?”
Different Dollars, Different Jobs
Retirement assets may need to provide different functions. One product or account does not necessarily have to perform every job.
Liquidity
Money readily available for expenses, emergencies, and near-term needs.
Growth
Money positioned primarily for longer-term appreciation and inflation considerations.
Protection
Money the household does not want directly exposed to substantial market losses.
Income
Assets intended to help generate predictable retirement cash flow.
Legacy / Long-Term
Assets intended for heirs, later-life needs, or other long-term purposes.
This framework helps you think about purpose, not proportions. We do not suggest equal allocation among the five categories — and we won't give you individualized percentages. That depends entirely on your circumstances.
“I've Heard Annuities Are Bad.”
The first problem with that statement is that not all annuities are the same. “Annuity” describes a category of insurance contracts rather than one identical product.
Income Annuities
Primarily designed to convert assets into a stream of income under specified contract terms.
Learn moreTraditional Fixed Annuities
Generally provide interest according to contractual terms without direct participation in stock-market investments.
Learn moreFixed Indexed Annuities
Provide interest-crediting potential linked in part to the performance of an external market index while protecting contract value from losses caused directly by negative index performance, subject to the terms of the contract.
Learn moreVariable Annuities
Use investment subaccounts and can provide greater direct market exposure, including the possibility of investment losses.
Learn moreSpecific features vary by product, carrier, and jurisdiction. These summaries describe general characteristics, not the terms of any particular contract.
The Annuity Has Changed. Has Your Understanding of It?
This is not a literal universal historical chronology. It's the evolution of problems different annuity structures have been designed to address.
Predictable Income
The classic consumer conception of an annuity: exchanging assets under contract terms for predictable income.
Fixed Accumulation
Deferred fixed annuities can provide contractual interest and tax-deferred accumulation rather than simply functioning as immediate income products.
Index-Linked Interest Potential
Fixed indexed annuities, where interest-crediting calculations can reference an external market index while the contract itself is not a direct investment in that index.
Modern Multi-Objective Designs
Some modern FIA contracts may combine several capabilities, depending on the product — protection from direct index losses, index-linked interest-crediting potential, access subject to contract provisions, death benefits, and optional lifetime-income features.
On TheAnnuityTruth.com, we may describe this combination as a “modern” or “hybrid” approach. “Hybrid annuity” is not being used as a standardized regulatory product category. It describes the idea that one contract may address multiple retirement objectives. We do not claim that any product class called “Hybrid Fixed Indexed Annuity” exists.
So What Is a Fixed Indexed Annuity?
A fixed indexed annuity is an insurance contract. It is not a direct investment in a stock-market index.
Interest credited to the contract may be determined in part by the performance of one or more external indexes according to the contract's crediting methodology.
Depending on the contract, those methodologies may involve features such as:
- participation rates
- caps
- spreads
- index periods
- other contractual formulas
The essential trade: You generally do not receive unlimited stock-market upside. In exchange, the contract provides protections and guarantees defined by the policy.
We avoid simplistic claims like “market upside with no downside.” The reality is more precise — and more honest.
Protection + Growth Potential + Income
These are the three broad capabilities a fixed indexed annuity may offer. Each comes with its own conditions and limitations.
Protection
FIA contract value is protected from losses caused directly by negative performance of the referenced index, subject to contract terms.
This is not protection against every possible form of loss.
Growth Potential
Interest-crediting potential linked in part to an external index, without directly owning the index.
Credited interest will not necessarily equal index performance. Contractual crediting rules may limit the interest credited.
Income
Certain FIA contracts may provide lifetime-income features, sometimes through optional riders or contractual provisions.
Not every FIA automatically includes identical lifetime-income benefits. Features vary.
What Do You Give Up?
There is no retirement product that provides every possible advantage without tradeoffs. Fixed indexed annuities are no exception.
Limited Market Participation
The contract's credited interest may not capture the full increase of the referenced index.
Liquidity Restrictions
Withdrawals beyond contractual allowances during a surrender period may trigger surrender charges or other adjustments.
Complexity
Crediting methods, income riders, and contract terminology can require careful explanation.
Opportunity Cost
During strong equity markets, an FIA may produce less growth than investments with direct market exposure.
Inflation
Predictable income is not automatically the same as maintaining purchasing power.
Insurer Guarantees
Insurance guarantees depend on the claims-paying ability of the issuing insurance company and applicable contract terms.
Protection has value. Growth has value. Liquidity has value. Income guarantees have value. The decision is about which combination matters most for the job that particular portion of your retirement savings needs to perform.
Sometimes an Annuity Is the Wrong Answer.
Despite the name of this website, we're not here to convince everyone to buy an annuity.
An annuity is a financial tool. Whether it belongs in your retirement strategy depends on the job you need your money to perform.
An annuity may deserve a closer look when protecting a portion of retirement savings from direct market losses and creating dependable retirement income are high priorities.
But it may be a poor fit for money you need to keep completely liquid, money you expect to use in the near future, or assets whose primary objective is maximizing long-term market growth.
And putting too much of your retirement savings into any one strategy can create problems of its own.
That's why we think the first question shouldn't be:
“Which annuity should I buy?”
It should be:
“What jobs does my retirement money need to perform?”
Once you understand that, you can evaluate whether an annuity deserves a role — and, if it does, what that role should be.
Annuity Myths Worth Examining
Click into each question for the fuller answer. Here are the short versions.
Aren't all annuities basically the same?
“Annuity” describes a category of insurance contracts, not one identical product. The objectives and mechanics differ substantially by type.
Read the fuller answerDoes an annuity mean my money is locked up?
Surrender periods exist, but most contracts include free withdrawal provisions and other liquidity features. 'Locked up' is an oversimplification.
Read the fuller answerDo I lose control of my money when I buy an annuity?
Control looks different than in a brokerage account, but it is not automatically forfeited. It depends on the contract and the choices you make.
Read the fuller answerAre annuities full of hidden fees?
Many fixed indexed annuities have no explicit annual fee on the base contract. Where fees can appear — and how they're disclosed.
Read the fuller answerIf the stock market goes up, do I get the same return?
Not necessarily. Crediting methods limit how much index gains are passed through. That limit is part of the trade for the protections.
Read the fuller answerWhat happens to my annuity when I die?
Contract value typically passes to a named beneficiary through death-benefit provisions. The specifics depend on the contract and your elections.
Read the fuller answerWhy do some financial advisors say annuities are bad?
Some objections target specific products or past sales practices. Others are philosophical. Telling them apart matters.
Read the fuller answerAre annuities only useful for guaranteed income?
Income is one job annuities can perform. Accumulation, protection, and legacy are others — depending on the product.
Read the fuller answerBefore You Choose a Product, Define the Job.
The Retirement Income Review is designed to help you examine the questions that actually matter — not to sell you a product.
- How much retirement income will you need?
- Where will that income come from?
- How much of your savings needs immediate liquidity?
- How much market risk are you comfortable retaining?
- Which assets are intended primarily for growth?
- Which assets, if any, would you prefer to protect from direct market losses?
- How important is predictable lifetime income?
- What tradeoffs are you comfortable making?
We will not promise that the review will result in an annuity recommendation. The objective isn't to force an annuity into your retirement strategy. It's to determine whether one deserves a role in it.
See whether a modern annuity belongs in your retirement strategy — and where it may not.
Understand the Tradeoffs. Then Decide.
You spent decades accumulating your retirement savings. You shouldn't make a major decision about that money because someone told you annuities were wonderful. And you shouldn't dismiss an entire category because someone told you annuities were terrible.
Understand how the products actually work. Understand what they protect. Understand what they don't. Understand what you may gain. Understand what you may give up. Then decide whether the trade makes sense for you.