What is an annuity?
An annuity is a contract between you and an insurance company. You give the insurer a lump sum (or a series of payments), and in exchange the insurer promises future payments — either for a set number of years, or for the rest of your life.
The two phases
1. Accumulation
Your premium sits inside the contract and grows on a tax-deferred basis. In a fixed annuity, growth is either a declared interest rate (MYGA) or interest credited from an outside index formula (FIA) — with a floor of zero, so you can't lose principal to market drops.
2. Income / Payout
When you're ready, you convert the contract value into a stream of income. That stream can be for a fixed number of years, for your lifetime, or for the joint lifetime of you and a spouse. This is the "paycheck" side of the contract.
How it compares
| Savings / CD | Brokerage | 401(k) / IRA | Fixed Annuity | |
|---|---|---|---|---|
| Principal protection | Yes (FDIC) | No | Depends on holdings | Yes (insurer) |
| Guaranteed lifetime income | No | No | No | Yes (with income option) |
| Tax treatment | Interest taxed yearly | Cap gains + dividends | Tax-deferred / tax-free | Tax-deferred |
Glossary
- Surrender period
- The window (often 5–10 years) during which withdrawing more than the free amount triggers a surrender charge.
- Free withdrawal amount
- A percentage of the contract (commonly 10%) you can withdraw each year without penalty during the surrender period.
- Income rider (GLWB)
- An optional benefit that guarantees a lifetime withdrawal amount even if the contract value is exhausted.
- Cap rate / participation rate
- In a fixed indexed annuity, these limit how much of an outside index's gain is credited to your contract in a given period.
- Market value adjustment (MVA)
- An adjustment applied to certain early withdrawals that reflects changes in interest rates since the contract was issued.
- Annuitization
- Permanently converting the contract value into a stream of periodic payments.
This agent offers fixed annuities only and does not hold FINRA securities registration. Variable annuities are not offered.
Ready to see the numbers for your retirement?
No fees, no obligation — a straightforward conversation with Richard.