You’re getting closer to retirement. Someone mentions annuities. And suddenly you’re wondering: Is this right for me? Could I be missing out? You’re not alone. According to LIMRA, U.S. annuity sales hit a record $385 billion in 2023, yet many buyers later regret their purchase. Knowing the right questions to ask about annuities before you sign anything can save you thousands and protect your retirement income for life.

What Is an Annuity and How Do Annuities Work?

An annuity is a contract between you and an insurance company. You hand over a lump sum or make payments over time and in return, the insurer promises to pay you a guaranteed income, either immediately or at a future date.

There are two main phases:

• Accumulation phase — your money grows, tax-deferred
• Payout phase — the insurer sends you regular income payments

This is why annuities for retirement income are so appealing. They work like a personal pension. You can’t outlive the payments.

Social Security works the same way, a guaranteed income for life. But here’s the reality: Social Security was never designed to be your only income source. The average monthly Social Security benefit in 2024 is around $1,907. For most people, that doesn’t cover everything. An annuity can fill that gap.

Did you know? The amount you receive from Social Security depends entirely on when you apply and how much you paid in over your working years. Learning how to maximize those benefits is the first step in any smart retirement income plan. 

What’s the Difference Between a Fixed vs Variable Annuity?

Not all annuities are the same. Understanding the fixed vs variable annuity difference is one of the most important things you can do before buying.

Fixed Annuity

• Guaranteed interest rate, no market risk
• Predictable, stable income payments
• Best for those ages 56–62 who want security over growth
• Lower fees, simpler terms

Variable Annuity

• Returns tied to market performance but can go up or down
• Higher growth potential, but higher risk
• More suited for those ages 45–55 with time to recover from market dips
• Higher fees and more complex contracts

Indexed Annuity (a popular middle ground)

• Tied to a market index like the S&P 500
• Offers some growth potential with a floor, you won’t lose principal if the market drops
• Gaining popularity among pre-retirees who want balance

There is no universally “best” type. The right choice depends on your age, risk tolerance, income needs, and tax situation. A licensed representative can help you find the fit.

What Are the Real Pros and Cons of Annuities?

Before you move forward, look at both sides honestly. Here are the real pros and cons of annuities:

Pros

• Guaranteed income you cannot outlive
• Tax-deferred growth during the accumulation phase
• Creates a reliable “paycheck” alongside your Social Security income
• Can include spousal continuation — income keeps coming after you’re gone
• Reduces the risk of spending down your savings too fast

Cons

• Surrender charges can be steep if you need to withdraw early
• Fees on variable annuities can eat into your returns
• Contract terms and riders are complex and hard to compare
• Your money can be locked up — limited liquidity

The pros and cons of annuities don’t tell the full story. The fine print does. That’s exactly why knowing what to ask matters more than any list.

Why Are So Many Seniors Burned by Annuities and How Do You Avoid It?

Annuities are among the most complained-about financial products in America. That’s not because they don’t work. It’s because too many seniors are sold the wrong product by someone chasing a commission.

The result? High surrender charges. Hidden fees. Riders that sound useful but cost more than they’re worth.

Watch for these red flags:

• The agent creates urgency: “This offer won’t last”
• No clear explanation of the surrender period or early withdrawal penalties
• Fees are buried in the contract, not explained upfront
• No discussion of how the annuity impacts your Social Security income or tax bracket
• The advisor can’t answer basic questions in plain language

A trustworthy professional welcomes every question you throw at them. If they get defensive or vague, walk away. At Retirement Income Planner, we connect you with licensed, independent representatives who put your interests first. Not a sales quota.

What Questions Should You Ask About Annuities Before You Buy?

This is the most important section of this entire post. Before you sign any contract, run every advisor through this list. These are the essential questions to ask about annuities. And a good advisor will have clear, straightforward answers to every one.

1. What type of annuity is this? Why is it right for my situation?
2. What is the surrender period, and what happens if I need my money early?
3. What fees will I pay and how do they affect my overall return?
4. How does this product interact with my Social Security income?
5. Will this annuity affect my tax bracket or Medicare premiums?
6. What riders are included, and what do they actually cost?
7. What happens to my annuity when I die? Can my spouse or beneficiary continue receiving payments?
8. Is this a fixed or variable annuity and does that match my risk tolerance?
9. How financially strong is the insurance company? What is their independent rating?
10. Am I locked in, or do I have any liquidity options in an emergency?

These aren’t trick questions. They’re your right as a buyer. If you’re learning how to purchase an annuity, this list is your starting point, not the brochure an agent hands you.

How Does an Annuity Fit Into Your Retirement Income Plan?

Social Security is your foundation. But it was never designed to carry your entire retirement.

Here’s what many people don’t realize:

• Social Security could reduce its future payouts. Trustees have warned that the trust fund may be depleted by 2033, which could trigger a benefit cut of up to 23%.
• If your spouse passes away, you may lose one of your Social Security checks entirely.
• Inflation quietly erodes the purchasing power of a fixed Social Security benefit over time.

Annuities for seniors work best when layered on top of Social Security not as a replacement, but as a second guaranteed income stream. Together, they create a retirement “paycheck” that’s harder to outlive or disrupt.

There’s another benefit most people overlook: tax efficiency. Properly structured annuities for retirement income can help you manage which tax bracket your income falls into. That means keeping more money in your pocket instead of handing it over to Uncle Sam.

The goal isn’t just to have retirement income. It’s to keep as much of it as possible. Retirement income planning works best when Social Security, annuities, tax strategy, and other accounts are managed together, not in separate silos.

Ready to Ask the Right Questions? We’ll Connect You With a Licensed Expert.

You’ve worked too hard to leave your retirement to chance. Or to the wrong advisor. At Retirement Income Planner, our mission is to inform and educate seniors and pre-retirees about Social Security, annuities, and the full range of financial services available to you. We connect you with a licensed representative in your area, someone who will walk you through every question on this list and help you build a retirement income plan that actually works.

You now know the questions to ask about annuities. The next step is asking them with the right person by your side.