10 Questions to Ask Before You Buy an Annuity

The best questions to ask before buying an annuity are the ones that force the details onto the table: how long your money is tied up, what it costs to get out early, what the guarantees actually are, how the agent is paid, and what happens to your family when you die. An annuity is a long-term contract. Ten minutes of good questions now can save you years of regret.

Here are the ten questions I'd want every Georgia retiree to ask, whether they're sitting across from me in Norcross or from anyone else.

Key takeaways

• Ask for the surrender schedule, the free-withdrawal amount, and every fee in writing before you sign.
• Annuity guarantees are backed by the claims-paying ability of the issuing insurer, not the FDIC. Check the company's ratings.
• Georgia's best-interest rule requires agents to disclose how they're paid and document why the recommendation fits you.
• Withdrawals of earnings before age 59½ generally face a 10% IRS additional tax on top of ordinary income tax.
• Georgia law gives you 10 days after delivery to cancel an annuity for a full refund.

10 questions to ask before you buy an annuity

1. What kind of annuity is this, and what job is it doing for me?

Fixed, fixed indexed, immediate, deferred, and variable annuities work very differently. Before anything else, you should be able to say in one sentence what this contract is for: guaranteed lifetime income starting at a certain age, protecting principal from market losses for a set period, or something else. If the agent can't explain the job in plain English, slow down. For a refresher on the main types, see fixed indexed annuities explained.

2. How long is the surrender period, and what are the charges each year?

Most deferred annuities charge a penalty for withdrawing more than an allowed amount during the early years. FINRA notes these periods are usually within the first six to 10 years after purchase, and some run longer. Ask for the year-by-year schedule in writing. Then ask yourself honestly whether you could leave this money alone for that long.

3. How much can I withdraw each year without a penalty?

Many contracts allow a free withdrawal, often around 10% of the value per year, but the amount varies by contract and may not be available in the first year. Ask whether withdrawals reduce any income rider benefit, and whether charges are waived for events like nursing home confinement or terminal illness.

4. What is guaranteed, and what can the company change?

This question matters most for fixed indexed annuities. Caps, participation rates, and spreads are usually set for one year at a time. FINRA warns that some contracts "allow the issuer to change the fees, participation rates and interest caps from time to time." Ask for the guaranteed minimum cap or participation rate, not just today's rate, and for the guaranteed minimum interest rate on the fixed account. And remember: every guarantee is backed by the claims-paying ability of the insurer, not the FDIC.

5. What are all the fees, including rider fees?

Fixed and fixed indexed annuities often have no explicit annual fee, but optional riders for guaranteed lifetime income or enhanced death benefits do charge a yearly percentage. Ask what the rider costs, what it's charged against (the account value or a separate "benefit base"), whether the fee can increase, and whether you can drop the rider later. Also ask whether any index strategy carries a spread or strategy fee.

6. How is the insurance company rated?

The Georgia Office of Commissioner of Insurance and Safety Fire tells consumers to check the company's credit rating before buying. Ask for the insurer's current ratings from the major rating agencies and how long the company has been issuing annuities. A guarantee is only as strong as the company behind it.

7. How are you paid, and are you licensed in Georgia?

Under Georgia Rule 120-2-94, an agent recommending an annuity must act in your best interest, disclose on a prescribed form how they're compensated and which insurers they represent, and keep a written record of why the recommendation fits you. You're entitled to that disclosure before the sale. Verify the agent's license using the Agent Search at oci.georgia.gov. A good agent will welcome the question.

8. How will withdrawals and income be taxed?

Annuities grow tax-deferred, not tax-free. For a nonqualified annuity, the IRS says withdrawals are allocated "first to earnings (the taxable part) and then to your cost." Earnings are taxed as ordinary income, and withdrawals before age 59½ generally face a 10% additional tax unless an exception applies. If the annuity holds IRA or 401(k) money, the whole withdrawal is generally taxable, and required minimum distributions apply starting at age 73 under current IRS rules. Georgia residents may be able to exclude some annuity income under the state's retirement income exclusion. Ask your tax professional about your own situation.

9. What happens when I die?

Ask exactly what your beneficiary receives: the full account value, the surrender value, or continued income payments. If you're choosing an income payout, understand the difference between "life only," "joint life," "period certain," and "cash refund" options. The highest monthly payment usually comes with the least left for heirs.

10. What if I change my mind?

Georgia law provides a free-look period of 10 days after actual delivery of an annuity contract. If you cancel in that window, you get a full refund. Ask the agent to confirm the free-look period in writing and to mark the delivery date. If you're replacing an existing annuity or life policy, also ask what you're giving up: the OCI warns that replacement policies start new surrender charges.

Want someone to go through these ten questions with you on a contract you're considering, or one you already own? That's exactly what my free review is for.

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How to protect yourself: before, during, and after

• Before: Write down your goal for the money and the date you might need it. Never put emergency savings into an annuity.
• During: Bring a spouse or trusted family member. Ask for the contract, disclosure form, and surrender schedule to take home. Don't sign the same day if you feel rushed. The OCI specifically warns about "high-pressure" pitches and "limited-time" offers.
• After: Read the delivered contract during the free-look period. Confirm the beneficiary designation. Keep the paperwork. As the OCI puts it, "the proof is in the paperwork."

When the answers should make you walk away

If the agent won't put the surrender schedule and fees in writing, can't show you a Georgia license, says the product has "no risk" or "guaranteed market returns," pressures you to sign today, or asks you to write a check to anyone other than the insurance company, stop. Those are not features of a good annuity. They are signs of a bad sale.

Frequently asked questions

Is there a cooling-off period after buying an annuity in Georgia?

Yes. According to the Georgia OCI, state law provides 10 days after actual delivery to review the contract and cancel for a full refund.

Do annuities have hidden fees?

Fees aren't hidden, but they can be easy to miss. Look for surrender charges, rider fees, spreads, and strategy fees in the contract and disclosure documents, and ask whether any of them can change.

What's the difference between a fixed indexed and a variable annuity?

A fixed indexed annuity credits interest based on an index with a floor, so your account value isn't reduced by index losses. A variable annuity invests in market subaccounts and can lose value. Variable annuities are securities, which I don't sell. See my comparison of fixed indexed vs. variable annuities.

Should I put all my savings in an annuity?

Almost never. Keep an emergency fund and money for near-term needs outside the surrender period. An annuity usually works best as one part of a plan, covering a specific income gap or protecting a specific portion of savings.

If you're a Georgia resident weighing an annuity, call (470) 470-5593 or book your free review below, and bring your questions. All ten of them.

Get your free retirement income review

Tai Nguyen is a licensed life insurance agent in Georgia (License #3784707, NPN 21496686). This article is for educational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your situation. Insurance and annuity guarantees are backed by the claims-paying ability of the issuing insurance company. Annuities and life insurance are not FDIC insured. Retire With Tai serves Georgia residents only.