What’s the Best Annuity for You?

If you’ve decided an annuity is a smart part of your retirement strategy, the next step is choosing the type that best fits your needs. That decision depends on several key factors.

How comfortable are you with risk? When will you need access to the funds? Which guarantees matter most to you? And most importantly, what are you hoping to achieve with the annuity?

Let’s walk through some essential questions to help you find the annuity option that fits your financial goals.

1. What Are You Looking For?

If your priority is steady, predictable interest, a fixed annuity or multi-year guarantee annuity (MYGA) may be a good fit. These options offer a set interest rate for a specific period.

Want growth potential above a guaranteed minimum — without risking your principal? Consider a fixed index annuity. These annuities offer interest credits based on an underlying market index, but your principal is protected even if the index drops.

In exchange for that protection, the insurance company applies certain limits, such as caps or participation rates, to your earnings. But your money won’t lose value due to market downturns.

If you’re seeking maximum growth potential and can tolerate market risk, a variable annuity may offer broader upside — but it also comes with the risk of loss. The value depends on how the underlying investment subaccounts perform.

2. What Is Your Purpose for the Annuity?

Every annuity can offer guaranteed lifetime income, but some are better suited for income, while others focus on growth or accumulation.

Fixed annuities and MYGAs are often used for stable, tax-deferred accumulation. For income-focused strategies, options like deferred income annuities, immediate annuities, fixed index annuities, and even some variable annuities may offer stronger benefits.

Deferred and immediate income annuities are designed specifically for generating guaranteed income — either starting now or in the future.

A fixed index annuity with an income rider may provide more flexibility. These riders offer lifetime income benefits and often allow partial access to your money, although they typically carry an annual fee.

Variable annuities may also offer income riders, but keep in mind they are market-based and come with risk.

Ultimately, your annuity should align with your overall purpose — whether that’s income security, growth, or a mix of both.

3. What is Your Financial Timeline?

Do you need income now or years from now? If you want income within the next 12 months, an immediate annuity could be appropriate. It may also offer partial tax advantages, depending on the source of funds.

If you’re planning for income down the road, consider deferred annuities. These include fixed annuities, MYGAs, indexed annuities, and variable annuities — each with a deferral period before payouts begin.

These options can provide time for growth before you activate income, and your timeline will help determine which annuity structure makes the most sense.

4. How Much Liquidity Do You Need?

By design, annuities are long-term contracts and generally not as liquid as other assets. However, most contracts include a free withdrawal provision.

This typically allows you to access up to 10% of your contract value each year without penalty. If you delay taking withdrawals for several years, some contracts allow you to take more — even up to 30% — through cumulative withdrawal features.

Some annuities offer additional liquidity via optional riders. For example, one rider might cost 0.95% annually but provide access to 20% or more of the account value each year. If unused for several years, this benefit can accumulate, allowing up to 40% withdrawal without penalties.

Withdrawals beyond your contract’s limits may result in surrender charges. These penalties typically decrease over time, but they’re a key consideration in deciding how much access you’ll need.

5. What Kind of Tax Treatment Do You Want?

Withdrawals from annuities held inside an IRA or other qualified retirement plan are generally taxed as ordinary income. You’ll pay taxes based on your top marginal bracket.

Non-qualified annuities, however, provide a mix of tax-free and taxable income. Payments are treated as a return of principal until that principal is exhausted. After that, the rest is taxed as ordinary income.

One advantage of annuities is their lack of contribution limits. Unlike IRAs or 401(k)s, you can contribute large amounts — even millions — into a non-qualified annuity and benefit from tax-deferred growth.

Keep in mind: Contributions to a non-qualified annuity are not tax-deductible. And if you take withdrawals before age 59½, the IRS imposes a 10% early withdrawal penalty, similar to early distributions from retirement accounts.

Find the Right Type of Annuity for Your Retirement Goals

The best annuity for you depends on your goals, timeline, risk tolerance, and income needs. All of these factors should be weighed carefully before selecting a contract.

Ask the Right Questions Before You Choose

Before selecting any annuity, it’s important to weigh your goals, timeline, risk tolerance, and income needs. Foxcove Financial can help you evaluate insured annuity strategies that align with your long-term retirement vision — not just short-term interest rates.