The Annuity Questions Nobody Tells You to Ask (Before You Sign Anything)
An annuity is a contract you usually can’t easily undo. That one fact should change how you shop for it.
Most of the financial decisions you make are reversible. You buy a stock, you don’t like it, you sell it Tuesday. You open the wrong savings account, you close it. An annuity isn’t like that. You hand over a lump sum, you sign a contract, and for the next several years getting that money back early means paying a penalty — sometimes a steep one. So the questions you ask before you sign are worth more than anything you learn after. After, you’re a customer. Before, you’re still the one with leverage.
Here’s the test that runs underneath all of this: a good annuity salesperson welcomes hard questions. A bad one dodges them. That’s the whole filter. The questions below aren’t there to trap anyone — a straight seller will have crisp answers ready. They’re there so you can tell the difference. Ask all seven. Listen to how they answer as much as what they answer.
1. What type of annuity is this — exactly?
There isn’t “an annuity.” There are several kinds, and they behave completely differently. A fixed annuity pays a set interest rate, like a CD. A fixed-indexed annuity ties your gains to a market index with a cap and a floor. An immediate income annuity turns a lump sum into a paycheck starting now. A variable annuity puts your money into market sub-accounts that can go down.
Those are not variations on a theme. They’re different products for different jobs.
A good answer names the type plainly and tells you why that type fits your situation — “this is a fixed-indexed annuity, here’s the cap, here’s the floor, here’s why I’m suggesting it over a plain fixed one for you.” A bad answer keeps it fuzzy. “It’s a retirement income solution.” “It’s a safe-money strategy.” If the seller blurs the type, walk. Either they don’t understand the product, or they don’t want you to — and neither one is a person you sign a contract with.
2. What am I actually paying — all of it?
“There are no fees” is almost always either wrong or hiding something.
Annuities can carry several layers of cost, and they’re easy to bury. Income riders carry a rider fee. Variable annuities carry mortality-and-expense charges — “M&E” — plus the fees on each sub-account underneath. Some products stack two or three of these at once. None of it shows up as a line item on your statement the way a stock commission does, which is exactly why you have to ask.
A good answer gives you the all-in number — every rider fee, every M&E charge, every sub-account cost — as a percent per year, in plain English. A bad answer is “there are no fees, the insurance company pays me.” There are costs; the carrier builds them into the product. So make them say the all-in number out loud, and get it in writing. A seller who can’t tell you what you’re paying either doesn’t know or won’t say. Same problem as question one.
3. Is the guarantee on my income, or on my account value?
This is the one people confuse most, and the confusion costs them.
A lot of annuities are sold on a “guaranteed” number that grows every year — sometimes 6% or 7%. It sounds like your money is growing at 7%. It usually isn’t. That guaranteed growth is almost always on a benefit base — a separate figure used only to calculate your future income stream — not on the actual account value you could walk away with. The income rider guarantees the paycheck. It does not guarantee that your money grows.
So you can own one of these for ten years, take the guaranteed income exactly as promised, and still have an account value that grew far less than that headline number — or barely at all.
A good answer draws the line cleanly: “the guarantee is on your income, here’s roughly what your actual account value does, and here’s the difference.” A bad answer lets you keep believing your balance compounds at 7%. The income guarantee can still be a perfectly good deal — building a floor you can’t outlive is the whole point of some of these products. But you have to know which number is guaranteed before you sign, not after.
Not sure which type even fits your situation? Take the Fit Quiz → — a few questions, no contact info required to see your result, and it’ll tell you which kind of annuity (if any) is worth a real conversation.
4. What’s the surrender schedule?
Remember the part where this is hard to undo — the surrender schedule is exactly how hard.
When you put money into most annuities, you agree to leave it there for a set number of years. Pull it out early and you pay a surrender charge. Three specifics matter, and you should get all three: how many years the surrender period runs, what the penalty is if you need the money early, and what the penalty-free withdrawal allowance is — most contracts let you take some amount each year, often around 10%, without a charge.
A good answer lays out the schedule year by year. “Seven-year surrender, starts at 8% and steps down to zero, and you can take 10% a year penalty-free the whole time.” A bad answer waves it off — “you won’t need to touch it, so don’t worry about that.” You might need to touch it. Life happens on its own schedule, not the contract’s. The honest version of this product names the lock-up plainly and helps you size the deposit so you’re never forced to break it.
5. How strong is the carrier?
A guarantee is only as good as the company standing behind it. Annuity guarantees aren’t FDIC-insured and they aren’t backed by the government — they’re backed by the insurance company’s ability to pay its claims, full stop. So you’re not just buying a product. You’re lending money to a specific insurer for years, and you want to know they’ll be good for it.
Insurers carry financial-strength ratings from agencies like A.M. Best, S&P, and Moody’s. That’s the number to ask for.
A good answer tells you the carrier and its ratings without being chased for it — “this is Athene, here’s their A.M. Best rating, here’s what that means.” A bad answer changes the subject to the product features. A seller proud of the carrier mentions the rating early. A seller steering you toward whatever pays them most would rather you not look. Ask the rating. It’s a one-minute question that tells you a lot.
6. How are you paid — and how much?
Now the question people are too polite to ask. Ask it anyway, because the answer tells you which incentives are in the room.
Here’s the honest version, and it’s about us too. OwnYourPension is paid a commission by the insurance carrier when an annuity is placed. Not a fee you write us a check for — a commission the carrier pays out of the product. That’s how almost the entire annuity business works, ours included. We’re telling you that plainly, on purpose, because it’s the whole point of this question: a straight advisor states how they’re paid without flinching, and the fact that they’ll tell you is most of what you needed to know.
A good answer owns it. “I’m paid a commission by the carrier, it’s built into the product, and it doesn’t come out of your deposit as a separate charge.” Maybe they’ll even walk you through why they’d recommend this product if a different one paid them more. A bad answer gets cagey — “don’t worry about my end,” or a fast pivot back to the brochure. The commission isn’t the problem. Commissions are how this industry funds advice for people who’d never write a check for it. The dodge is the problem. A seller who won’t tell you how they’re paid is telling you something.
7. Will you put the recommendation in writing?
The last question is the one that separates a pitch from a recommendation: will you write down why — the actual reasons this product fits me?
This matters most when you’re moving money out of an IRA or a 401(k) to fund the annuity. That’s a rollover, and a rollover deserves a documented analysis — what you’re leaving behind, what you’re gaining, what it costs, and why the trade makes sense for you specifically. A good advisor does this as a matter of course, partly because the rules increasingly require it, but mostly because writing down the “reasons why” forces honesty. It’s hard to put a bad recommendation in writing.
A good answer is “yes, I’ll give you the reasons in writing, including the rollover analysis.” A bad answer is “we don’t really do that,” or pressure to sign today before you’ve seen anything on paper. Anyone rushing you past the paperwork is rushing you past the part that protects you. Take the time. The contract isn’t going anywhere, and if it is, that’s your answer.
The bottom line: An annuity can be one of the most useful tools in retirement — a paycheck you can’t outlive, a floor the market can’t cancel. But it’s a contract you can’t easily undo, which means the questions you ask before you sign are worth more than anything after. Ask all seven. Of anyone. Including us — especially us. A good answer to every one of these is what a trustworthy annuity looks like, and a dodge on any of them is your cue to keep your pen in your pocket.
Start with the no-pressure first step: Take the Annuity-Fit Quiz →
It takes a couple of minutes and tells you whether an annuity even fits your situation — and which type, if any — before you talk to a single salesperson. If it does fit, a licensed specialist will walk through all seven of these questions with you, in writing, and answer the commission one straight. And if the honest answer is “you don’t need one,” we’ll tell you that too. That’s the point of asking first.
OwnYourPension is an education and resource brand. We are not a pension provider, and nothing here is PBGC- or FDIC-insured. Any “guaranteed” income or feature refers to the contractual promise of the issuing insurance company and depends on that carrier’s claims-paying ability and the specific contract terms. Annuities and insurance products are offered through partnered licensed agencies and are sold for a commission paid by the issuing carrier — as discussed openly above. We are not fee-only and we do sell products; that’s exactly why we tell you to ask how anyone, including us, is paid. Examples and figures (fee percentages, surrender terms, rider rates) are illustrative; your actual product terms depend on the carrier, the contract, your age, and the rate environment. References to rollovers from IRAs or 401(k)s and any tax treatment are general and not tax or legal advice — confirm specifics with a licensed professional and your own tax advisor. Nothing here is individualized financial advice.