Turn a portion of savings into dependable income

Annuities

An annuity is an insurance contract that can accumulate money, create income later, or begin paying income soon. The central question is not simply “Should I buy an annuity?” It is “Which expenses must be covered reliably, and how much money must remain accessible?”

A useful place to begin: The U.S. Department of Labor’s Lifetime Income Calculator converts retirement-account savings into an estimated monthly lifetime-income amount. Patrons can compare that estimate with essential monthly expenses and other dependable income before considering whether an annuity may help address a gap. Use the Department of Labor Lifetime Income Calculator

Start with the family—not the contract

Identify the income that must not disappear

List dependable monthly income expected from Social Security, pensions, employment, or other reliable sources. Then list essential expenses such as housing, utilities, food, transportation, health needs, caregiving, accessibility, and ongoing support for a Gift-Abled™ family member.

If essential expenses are higher than dependable income, the difference is an income gap. An annuity may be one way to address part of that gap, but emergency savings and money needed in the near future generally should remain readily accessible.

Understand the choices

Different annuities solve different problems

Select a highlighted option to review a family-centered example and questions to ask.

Immediate fixed annuityA lump sum is exchanged for payments that generally begin within one year.

Example: A retiring caregiver wants part of the household’s essential expenses covered by predictable monthly income now, while keeping a separate emergency fund available.

Ask: Is the payment for one life, two lives, or a guaranteed period? Does anything remain for beneficiaries? Is there an inflation option, and how does choosing it change the starting payment?

Deferred fixed annuityThe insurer credits a stated minimum rate while income or withdrawals begin later.

Example: Parents several years from retirement want a portion of savings to have principal and minimum-rate guarantees, subject to the contract and insurer’s claims-paying ability.

Ask: How long is the guaranteed rate? What minimum applies afterward? What surrender charge or market-value adjustment could apply if the family needs money early?

Fixed indexed annuityInterest is linked partly to an index, but the contract is not a direct investment in that index.

Example: A family wants some index-linked interest potential without direct stock-market losses to the contract value, while accepting that caps, participation rates, spreads, and surrender terms may limit results.

Ask: Which index and crediting method apply? Can the cap or participation rate change? What is guaranteed, and what would be credited if the index rises, stays flat, or falls?

RILA or variable annuityThese securities can offer greater market-linked growth potential and greater risk of loss.

Example: A household with a long time horizon and other liquid reserves considers market exposure plus an optional income feature, understanding that contract fees and investment losses can reduce value.

Ask: What losses are possible? What are the contract, investment, rider, and advisory costs? Are gains or losses limited? What conditions must be followed to preserve an optional guarantee?

Design income around real people

The payout choice can matter as much as the product

Hover over or focus on a card to highlight it. Select the card to open a family-centered example and questions to ask.

One life or two?A single-life payment may start higher but can stop at the owner’s death. A joint-and-survivor option may continue for a spouse or partner, usually with a lower starting payment. Families should consider who would still need income after the first death.

Example: One parent manages most of the household’s income while the other provides substantial daily support to their Gift-Abled™ child. A single-life option may provide more income while the covered parent lives, but a joint-and-survivor option may better protect the surviving parent’s ability to maintain housing, transportation, caregiving, and familiar routines.

Ask: How much would each option pay initially? What percentage continues after the first death? Whose life controls the payment? Would the survivor still have enough dependable income to meet essential family needs?

Income or inheritance?Life-only income may maximize the initial payment but may leave no remaining benefit after an early death. Period-certain, cash-refund, installment-refund, or death-benefit provisions may protect beneficiaries, often by reducing income or adding cost.

Example: Parents want retirement income but also want remaining funds to help support their Gift-Abled™ child if both parents die earlier than expected. They compare a higher life-only payment with lower-payment options that include a guaranteed period, refund provision, or beneficiary benefit.

Ask: What happens if death occurs in year one, year ten, or after the guaranteed period? Who receives the remaining value? Is the beneficiary benefit guaranteed, market-dependent, or reduced by withdrawals and fees?

Today’s payment or future purchasing power?A level payment may buy less as costs rise. An inflation adjustment or increasing-income option may begin with a lower payment. Ask to see how both choices could support housing, transportation, caregiving, and accessibility over time.

Example: A family expects accessible transportation, personal assistance, and household costs to continue for decades. A level annuity offers more income initially, while an increasing-payment option begins lower but may help address rising costs later.

Ask: Is the increase fixed or connected to an inflation measure? Is there a cap? How long would it take for the increasing payment to exceed the level payment? What happens if actual family expenses rise faster than the contract’s increase?

Preserve flexibility

A three-bucket conversation

These buckets describe different jobs for the family’s money. Select each highlighted card for an example and questions to ask.

Money needed soonKeep emergency funds and near-term expenses liquid. A long surrender period may be a poor fit for money the family could need for a home repair, vehicle, medical need, or caregiving change.

Example: A family may need an accessible-vehicle repair, replacement equipment, temporary caregiving, or an urgent housing modification. Keeping a separate liquid reserve can prevent the family from taking an annuity withdrawal that triggers charges or reduces future benefits.

Ask: How many months of essential expenses should remain outside the contract? What annual amount can be withdrawn without a surrender charge? Could a withdrawal reduce an income guarantee by more than the dollars removed?

Dependable incomeConsider which essential expenses should be supported by income that does not depend entirely on short-term market performance. Compare the proposed payment with guarantees, fees, inflation, and survivor needs.

Example: Social Security and a pension cover most—but not all—of the family’s housing, utilities, food, and transportation. The family evaluates whether annuity income could cover part of the remaining gap without committing money needed for emergencies.

Ask: Which payment is contractually guaranteed? When can it begin? Can it continue for a spouse? Does the payment rise over time? Which fees or withdrawals could reduce the benefit?

Long-term growthAssets intended for later years may remain invested according to the family’s time horizon and risk tolerance. An annuity guarantee and an investment account perform different jobs and should be evaluated separately.

Example: After separating emergency reserves and dependable-income needs, a family keeps other long-term assets diversified for potential growth. They avoid assuming that an index-linked annuity receives the full return of the stock-market index it references.

Ask: How much market loss can the family tolerate? What portion of future needs is already covered by dependable income? For an indexed product, what caps, participation rates, spreads, crediting periods, and dividend exclusions limit growth?

Prepare for a proposal review

Questions worth asking

Which values and payments are guaranteed, and which are illustrated or dependent on an index or investment performance?
What are every explicit and implicit cost, surrender charge, market-value adjustment, cap, spread, participation rate, and rider fee?
How much can be withdrawn annually, and what happens to contract value, income guarantees, and death benefits after a withdrawal?
What happens if the owner, annuitant, spouse, or beneficiary dies before and after income begins?
Does the proposal preserve enough cash for emergencies and the changing needs of the Gift-Abled™ family member?
What is the issuing insurer’s financial-strength information, and what protections and limits apply under the family’s state rules?
Consider carefully

Know what can be difficult to reverse

Annuities are designed for long-term goals. Early withdrawals can trigger surrender charges, contract adjustments, reduced guarantees, ordinary-income taxes, and—when applicable—federal tax penalties. Annuitizing may permanently change access to the principal.

An exchange into a new annuity can restart a surrender period and may generate compensation for the seller. Compare the existing and proposed contracts side by side before replacing anything.

Before signing

  • Request the full contract, disclosure documents, fee schedule, illustration, and written explanation of guarantees.
  • Ask the professional to show the outcome under favorable, neutral, and unfavorable assumptions.
  • Confirm the state’s free-look period and how to cancel during that period.
  • Verify the professional’s license and the insurer’s financial-strength information.
  • Use the SEC’s current consumer guide to compare fixed, indexed, registered index-linked, and variable annuities. Read Investor.gov’s Annuities guide.

Interested in learning more?

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Educational notice: This page provides general information only and is not financial, investment, insurance, tax, legal, medical, or public-benefits advice. It does not offer or bind coverage, determine eligibility, or guarantee results. Products, riders, costs, tax treatment, and availability vary by insurer, contract, state, and individual circumstances.

Consumer disclosure: PRES INC’s Gift-Abled™ Financial Planners campaign provides general financial-wellness education and outreach. At a patron’s request, PRES INC may introduce the patron to an appropriately licensed financial professional. A licensed financial professional may review products available from multiple carriers based on the family’s stated needs, goals, budget, health information, and circumstances—but only from carriers with which that professional is licensed, appointed, and authorized to offer products in the family’s state. PRES INC is not an insurance company and does not underwrite, issue, bind, approve, or guarantee coverage. No representation is made that any product will be the “best,” least expensive, suitable, available, or approved. Product recommendations and applications must be handled by the licensed professional. Carrier underwriting, policy terms, premiums, fees, exclusions, limitations, availability, and state requirements apply. Before applying, consumers should verify the professional’s license and review all carrier, product, compensation, and conflict disclosures.