Ask Better Questions About Buying an Annuity

Americans bought $432.4 billion worth of annuities in 2024 according to LIMRA. That kind of momentum signals something important: more people are recognizing the value of guaranteed* income in retirement. Yet according to that same research, only about one in five pre-retirees actually own an annuity. In other words, there's a gap between interest and action, and it often comes down to not knowing where to start.

The good news is that buying an annuity doesn't have to feel overwhelming. What matters most isn't memorizing product categories or application steps. Instead, it's knowing which questions to ask before you commit. Because the right annuity decision starts well before the paperwork does.

In this piece, we'll cover:

• The questions to ask yourself before buying an annuity

• The questions to ask any provider or advisor before signing

• How to tell whether an annuity aligns with your broader financial picture

Questions to Ask Yourself Before Buying an Annuity

An annuity is a financial contract that converts a lump sum of money into a series of guaranteed payments over a set period of time (or for life.) Annuities are commonly used as retirement income tools designed to help ensure you don't outlive your savings.

Before buying an annuity, you should evaluate your retirement income gap, your expected retirement span and how an annuity fits within your broader financial plan. Most annuity guides jump straight into product types and application steps. However, that's like shopping for a car before deciding whether you need one. Before you compare annuity types and what aligns with your financial future, start by asking yourself these questions.

"What's my income gap in retirement?" 

This is the foundational question. According to the 2025 Goldman Sachs Retirement Survey, 58% of working Americans believe they'll outlive their retirement savings. To get clarity, add up your expected Social Security benefits, pension income if applicable and projected withdrawals from savings. Then compare that total to your anticipated monthly expenses. If there's a gap between guaranteed income and essential costs, an annuity might help close it. On the other hand, if your guaranteed sources already cover the basics, your money may work harder elsewhere.

"How long do I need my money to last in retirement?" 

This sounds direct, but it can tend to get glossed over or pushed aside. According to LIMRA research, more than 4 million Americans are turning 65 each year through 2029, and many are doing so without a traditional pension. As a result, the longer your retirement horizon, the more valuable a guaranteed income stream becomes. For example, someone retiring at 60 in good health faces a different set of considerations than someone at 70 managing difficult conditions. Your answer here shapes everything from annuity type to payout timing. To read more about how to have fun in retirement while still making your savings last, read our guide.

"Am I comfortable giving up access to a lump sum?" 

This is the psychological question most people skip. Annuities convert assets into income, which means that money is no longer available to withdraw freely. For some people, that trade-off provides peace of mind. For others, it creates anxiety. Neither reaction is inherently wrong. However, understanding your own response matters before you sign anything.

"What role does an annuity play in my overall plan?"

 An annuity works best as one piece of a larger strategy that includes your investment portfolio, tax planning, estate goals and healthcare costs. Therefore, the right question isn't just "should I buy an annuity?" It's "how does an annuity fit into my holistic financial picture?" This is also where working with a fiduciary advisor adds real value, since they can evaluate the full picture rather than just one product in isolation.

Questions to Ask an Annuity Provider

At this stage, the right questions can save you money and prevent you from feeling regret in the future—it’s worth taking the time. Unlike purchasing stocks or bonds through a brokerage account, buying an annuity involves complex contract terms where professional guidance can meaningfully change your outcome.

"What will I actually pay in fees for an annuity?" 

According to Nationwide, annuity fees and commissions typically range from 2% to 3% annually, though this varies significantly by product type. Fixed immediate annuities—which begin payments right away—generally carry lower costs than something like variable annuities. Compared to other retirement products like index funds or target-date funds, annuity fees tend to be higher, which is why understanding exactly what you're paying for matters. Asking for a complete breakdown of fees is absolutely essential as it varies widely by annuity type.

"How is the person selling me this annuity compensated?" 

This might be the most important question on this list. Annuities are among the highest-commission products in financial services, which creates a natural conflict of interest. Some sellers earn more by directing you toward complex products with higher fees, regardless of whether simpler options would serve you better. So ask directly: are you a fiduciary? A fiduciary advisor is legally required to recommend what's best for you, not what pays them the most. You can verify any advisor's credentials and disciplinary history through FINRA's BrokerCheck tool.

"What happens if I need my money back?" 

Most annuities include surrender periods. Surrender periods are windows during which withdrawing your money triggers penalties. These can last anywhere from 3-10 years (commonly 6 to 8) depending on the contract. As a result, understanding the surrender schedule before you commit is essential. Also ask about the "free look period," which typically gives you 10 to 30 days after signing to cancel without penalty. It's a safety net, but making the right choice upfront matters more than relying on a refund window.

"Which type of annuity matches my situation?" 

There's no single answer here, because the right product depends entirely on your unique circumstances. For instance, someone approaching retirement with $500,000 in savings and no pension has very different needs than someone with $1 million and a federal pension covering their basics. Here’s a list of the different annuity options available to you and if they align:

The best choice depends on your timeline, risk tolerance and income needs. For a deeper look at how to evaluate advisors who specialize in retirement income planning, see our guide on choosing the right financial advisor for your goals. Additionally, to model out what your retirement future looks like, use our retirement savings calculator.

Does an Annuity Align with You?

Not every retirement plan needs an annuity. Here's a quick way to evaluate whether one aligns with your situation.

An annuity may align with your situation if you:

• Have a gap between guaranteed income (Social Security, pension) and essential monthly expenses

• Want predictable income that lasts throughout your retirement, regardless of market conditions or length

• Are comfortable converting a portion of assets into a payment stream you can't withdraw freely (locking up liquidity)

• Have already maximized other tax-advantaged retirement accounts like a 401(k) or IRA

An annuity may not align with your situation if you:

• Need full liquidity across your entire portfolio or will have heavy anxiety without immediate access

• Already have enough guaranteed income to cover basic expenses

• Are focused primarily on investment growth rather than longevity-focused income

• Have a shorter retirement timeline with significant other assets to draw from

Compared to handling these decisions alone, working with a fiduciary advisor can help you weigh these trade-offs against your complete financial picture.

Frequently Asked Questions About Buying an Annuity

Is an annuity a good investment? An annuity isn't an investment in the traditional sense. Rather, it's an income tool designed to provide guaranteed payment (often for life). Whether it fits depends on your income needs, timeline and existing guaranteed sources like Social Security.

How much money do I need to buy an annuity? Minimums vary by provider, but many annuities start around $5,000 to $25,000. That said, your contribution directly affects your payout, so the right amount depends on the income gap you're trying to close.

Do I need a financial advisor to buy an annuity? You can purchase one on your own. However, the complexity of surrender schedules, fee structures and tax implications makes professional guidance especially valuable here. A fiduciary advisor helps ensure the product aligns with your broader goals.

What are the biggest risks of buying an annuity? The primary risks include up-front commissions that reduce your initial investment principal, high fees that reduce long-term growth, surrender charges that limit access to your money, the possibility that inflation erodes the purchasing power of fixed payments over time and the financial strength of the insurance company issuing the annuity may decline and not be able to pay out the annuity obligation. Understanding these trade-offs with an advisor helps you structure a contract that accounts for them.

What is the difference between a fixed and variable annuity? A fixed annuity guarantees a set interest rate and predictable payments, making it lower risk. A variable annuity ties your returns to market-based investments like mutual funds, offering higher growth potential but also the possibility of loss. The SEC provides detailed guidance on how variable annuities work.

The Aligned Perspective: Buying an Annuity

More Americans are recognizing that a long retirement without guaranteed income is a real financial risk—it’s a big reason why we’re seeing a strong uptick in annuity interest recently. The right annuity decision isn't just about the product—it's about whether that product aligns with your income needs, your timeline and your complete financial plan.

At Datalign, we connect you with fiduciary professionals from our exclusive network of over 13,000 advisors—86% of whom appeared on Barron's Top RIA list. These are professionals who know exactly how to help, what you need and how to make you feel confident with your money. Click the button below to see your match.

Simple, strategic, and designed to give you clarity as you grow.

*The business risk in purchasing an annuity is that the financial strength of the insurance company issuing the annuity may decline and not be able to pay out the annuity obligation.