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Where to Buy an Annuity
Buying an annuity is one way to generate reliable income in retirement, but how you do it depends on your financial goals, risk tolerance, and preference for guaranteed payouts or more flexibility.
Here's a breakdown of your main options and how to make a smart purchase.
Feature | Direct from Insurer | Through Advisor/Broker |
|---|---|---|
Customization | High – tailor to your needs | Medium – based on advisor input |
Cost Transparency | Medium | Can vary by advisor |
Support | One-on-one with company | Personalized, ongoing |
Access to Providers | Limited to one company | Often multiple insurers |
Best For | Confident planners | Those wanting expert help |
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Buy an Annuity Directly from an Insurance Company
If you prefer personalized attention and specific features, you can buy an annuity directly from an insurance company such as New York Life, Pacific Life, or Prudential.
This gives you the ability to choose exactly how your annuity works—whether you want a fixed rate, inflation protection, or a lifetime income guarantee.
This approach is best for those who value predictability and are comfortable working with agents to compare options and negotiate features.
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Purchase Through a Financial Advisor or Broker
You can also buy annuities through a financial advisor or broker, which can simplify the process—especially if you want guidance on which type of annuity fits your broader financial plan.
However, be mindful of potential conflicts of interest. Some advisors may recommend annuities with higher commissions, so always ask how they’re compensated and whether they are a fiduciary.
How to Buy an Annuity: Step-by-Step Guide
Buying an annuity involves more than just picking a provider. You’ll need to evaluate your needs, understand the product, and review contract terms carefully.
Here’s a step-by-step breakdown:
Step 1: Choose the Right Type of Annuity
The first step is deciding what kind of annuity matches your goals. Do you want income right away (immediate annuity), or later (deferred)? Do you want predictable returns (fixed), or exposure to the market (variable or indexed)?
For example, someone retiring at 65 might choose an immediate annuity to start generating income now. But a 50-year-old might prefer a deferred annuity that starts payouts at 70, allowing the investment to grow tax-deferred in the meantime.
Choosing the right type ensures your annuity fits into your retirement income strategy—not just now, but in the future.
Type of Annuity | When It Pays | Risk Level | Best For |
|---|---|---|---|
Fixed Annuity | Starts immediately or later | Low | Income-focused retirees |
Variable Annuity | Deferred until elected | Moderate to high | Growth-seeking investors |
Immediate Annuity | Starts within 12 months | Low | Near-retirees needing income |
Deferred Income Annuity | Starts after several years | Low | Longevity planning |
Fixed Indexed Annuity | Deferred | Moderate | Moderate growth with protection |
Step 2: Compare Rates and Terms
Once you've chosen an annuity type, compare offerings from multiple providers. Look at:
Payout amount or interest rate
Length of payout period (lifetime, fixed years, joint life)
Fees and surrender charges
Optional riders like inflation protection or death benefits
Let’s say you’re evaluating two immediate annuities with a $100,000 premium. One pays $550/month for life, while another pays $530/month but includes a cost-of-living adjustment.
Depending on your needs, the second might be more valuable over time—even if the initial payout is lower.
Step 3: Understand Fees and Surrender Periods
Annuities often come with fees that can eat into your returns if you’re not careful. These might include:
Surrender charges (if you withdraw early)
Rider fees (for added features)
Annual administrative fees (especially for variable annuities)
For example, a variable annuity may charge a 1.25% annual fee plus 0.5% for optional riders. If the investment portion earns 5%, your net return would only be 3.25%. Therefore, it’s crucial to factor in fees when projecting long-term value.
Step 4: Finalize the Purchase and Review the Contract
Once you've chosen an annuity and provider, you’ll complete a purchase application and fund the annuity. This might be done via a rollover from your IRA, 401(k), or personal savings.
Before signing, review the contract carefully. Look for:
Clear payout schedules
Penalty clauses
Guarantees vs. non-guaranteed assumptions
If any terms are unclear, ask for clarification. Remember, once the free-look period ends (usually 10–30 days), the contract is binding.
Things to Consider When Buying an Annuity
Annuities can provide lifetime income—but it's crucial to evaluate key factors before committing, because they’re often long-term contracts.
Surrender Periods and Early Withdrawal Fees: Most annuities lock your funds for several years. For instance, cashing out a 10-year annuity early could trigger steep penalties.
Inflation Protection Options: Some fixed annuities lose value over time unless you add inflation riders. Therefore, ask if your payments can increase annually.
Company Financial Strength: Since insurers, not the government back annuity guarantees, choosing a provider with high ratings from AM Best or Moody’s is vital.
Tax Implications and Funding Source: Buying an annuity with IRA funds differs from using taxable savings. For example, non-qualified annuities may offer tax-deferred growth, but withdrawals are taxed as income.
FAQ
Minimum investments vary by provider, but many fixed or immediate annuities start around $5,000 to $10,000. Some variable annuities may require higher amounts.
Yes, you can fund an annuity with IRA money. This is often done to provide lifetime income while keeping tax-deferred growth.
Annuity payments are taxed as ordinary income if funded with pre-tax money. If you used after-tax dollars, only the earnings portion is taxed.
With immediate annuities, payouts begin within a year. Deferred annuities allow you to choose a future payout date that suits your retirement plan.
Withdrawals are possible but often come with penalties during the surrender period. Some contracts allow limited annual withdrawals without fees.
If you’ve added a death benefit or selected a period-certain payout, your beneficiary may receive remaining funds. Otherwise, payments typically stop.
Some annuities allow additional contributions during the accumulation phase, but not all do. Check your contract or ask the insurer before assuming so.
Annuities aren’t FDIC-insured, but state guaranty associations offer some protection if the insurance company fails. Limits vary by state.
Standard annuities don’t automatically adjust for inflation. However, you can add inflation riders or choose a product with cost-of-living adjustments.
Yes, many providers offer direct online purchasing options. Still, a financial advisor can help ensure the product aligns with your overall retirement goals.
Use online marketplaces or request quotes directly from insurers. Compare based on payout rates, fees, insurer ratings, and available rider options.
