The Boldin Financial Planner Take control of your plans. Retire earlier, with more security and find financial confidence.
Get expert support Make sure your plan is set up correctly with a coach. Or, talk to a CERTIFIED FINANCIAL PLANNER® from Boldin Advisors for even more guidance and support.
Resources Fuel your financial planning know-how
Blog Your guide to financial planning and retirement
May 23, 2026 • 8 minutes
If you’ve heard the phrase, “guaranteed income for life,” annuities are the product behind that promise. An annuity is an insurance contract. You hand an insurer a lump sum, or a series of payments. In return, they send that money back to you as income, often for the rest of your life.
That trade is the whole point. You give up some of your savings today. In exchange, the insurer takes on the risk that you’ll live longer than expected, or that markets disappoint.
More than 4 million Americans turn 65 every year through the rest of this decade. A lot of them don’t have a pension to lean on. That demand helped push U.S. annuity sales to a record $464 billion in 2025, the fourth straight year of records. A strong sales year doesn’t tell you whether an annuity fits your own plan though. It just means a lot of people made a similar bet.
Annuities come in five main varieties. Each one trades a different mix of guaranteed return and market upside.
The mix has shifted over the past decade. Indexed annuities, meaning FIAs and RILAs combined, made up 45% of total annuity sales in 2025. That’s nearly double their share ten years earlier. Buyers have moved toward products that protect principal while still capturing some market growth.
Federal and state regulators classify fixed, variable, and indexed annuities into distinct categories, each subject to specific insurance or securities oversight.
You choose when payments start and how long they last. That choice shapes almost everything else about the contract.
An immediate annuity starts paying within a year of purchase. A deferred annuity waits, sometimes for years, letting your money grow before payments begin. You can pick a lifetime payout that never runs out, or a fixed period like ten or twenty years. Some contracts add inflation adjustments, so your check grows over time instead of staying flat. Others include a return of principal feature, so your beneficiary gets what’s left if you die early. Each choice trades a bit more guaranteed income for a bit more flexibility, or the reverse.
Want to see what different payouts produce for your own numbers? The Lifetime Annuity Calculator lets you test a few side by side.
Most annuities charge a surrender fee if you pull money out early. That fee often runs 5% to 10% in the first several years. It steps down over time.
That charge exists to discourage early withdrawals. It can catch buyers off guard who didn’t plan on needing the cash. Variable annuities carry another layer of cost on top of that: management and rider fees on these products can reach 2% to 3% a year, well above what a typical index fund charges. Fixed and income annuities skip the visible fee line entirely. The insurer prices its costs into the rate or payout before it ever quotes you a number.
Riders that add guarantees, like a guaranteed minimum income benefit, cost extra no matter which product you pick. You pay for them whether or not you ever use what they guarantee. Read the illustration before you sign anything, and ask what happens to those fees if the rider goes unused.
Money inside a non-qualified annuity grows tax-deferred. You don’t owe anything on the growth until you take it out.
When you withdraw, the earnings come out first. The IRS taxes them as ordinary income, at a higher rate than long-term capital gains. For 2026, the top federal marginal rate is 37%, applying to income above $640,600 for single filers. Most people won’t hit that top bracket on annuity withdrawals alone. The income still stacks on top of whatever else you earn that year. Pull money out before age 59 and a half, and the IRS adds a 10% penalty. That’s on top of regular income tax.
Annuities held inside a 401(k) or IRA follow the tax rules of that account instead. A Roth version stays tax-free on qualified withdrawals. A traditional version gets taxed as ordinary income when you take distributions, the same as any other traditional account.
An annuity tends to help two kinds of people most. Someone without a pension who wants an income floor, and a high earner who’s already maxed out other tax-deferred space.
The first group wants a baseline that doesn’t move with the market, something to sit alongside Social Security. A pension isn’t there to fill that role anymore. The second group has already filled up their 401(k) or IRA and wants more room to defer taxes, since annuities carry no annual contribution limit.
If you already have enough guaranteed income from Social Security and a pension, adding another layer may not help much. If retirement is still years away and you can ride out market swings, staying invested may serve you better.
The Boldin Planner lets you model your plan twice, once with an annuity built in and once without it. That side-by-side view shows whether the guarantee is worth what it costs you in flexibility.
The mechanics you just read about don’t decide this for you. Your own numbers do.
For steps on how to compare out-of-money age and estate value, see our breakdown in this article. For the tradeoffs in plain terms, review the pros and cons of annuities. And check out the most common mistakes buyers make before you sign anything.
A fixed annuity locks in a set rate and payment, and the insurer carries the investment risk instead of you. A variable annuity puts your money into funds tied to the market, so what you get back moves with how those funds perform. Your fixed annuity balance doesn’t drop when the market does. A variable annuity’s can, in exchange for a shot at more growth.
Annuity costs vary by type. With fixed and income annuities, you won’t see a fee line item, since the insurer prices its costs directly into your rate or payout. Variable annuities carry rider and management fees in the 2% to 3% range each year. Early withdrawals from any annuity can trigger a surrender charge of 5% to 10%.
Fixed and indexed annuities shield your balance from market losses. The insurer absorbs that risk instead of you. Variable annuities carry no such shield, since your money sits directly in market subaccounts. In any annuity, an early withdrawal can trigger a surrender charge that reduces what you get back.
Withdrawals from a non-qualified annuity get taxed as ordinary income on the earnings portion, at a higher rate than capital gains. Withdraw before age 59 and a half, and a 10% early-withdrawal penalty applies on top of that. Annuities inside a 401(k) or IRA follow that account’s own tax rules instead.
Many annuities include a death benefit that pays your beneficiary the remaining account value or a lump sum. Lifetime-only income options can stop payments entirely at death, leaving nothing for heirs. Check your specific contract before assuming either outcome.
An annuity works like insurance on your income. Whether it helps your retirement depends on how much guaranteed income you already have from other sources, and how much flexibility you’re willing to give up to get more.
Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.
Should you buy an annuity? Investing your capital and planning for retirement are important practices, but there are a ton of options out there for how and where to park your money to realize potential growth in the future. Simply put, an annuity is a contract between you and an insurance company. You essentially give […]
Annuities can be a great way to receive a steady income in retirement, but because they are complex financial products, it’s best to do some research before purchasing one. Here are five annuity mistakes to avoid. Estimate how much income your savings can generate using an Annuity Calculator. 1. Investing Too Much Money When Purchasing […]
Most people categorize pensions in the same bucket as eight-track tape players, rotary phones, oversized shoulder pads and cathode-ray tube TVs — out of date. But, pensions just might become the latest retro craze — especially those you can create for yourself! NOTE: If you are lucky enough to have a pension, the Boldin Retirement […]
