What annuities actually are — and what they are not
An annuity is a contract between you and an insurance company. You give the company money — either as a lump sum or over time — and the company promises to pay you income, either starting now or at some point in the future. The promise can last for a set number of years or for the rest of your life. That is the core of every annuity, underneath all the riders and features.
The confusion starts when annuities are sold as investments. They are not. They are insurance products with an investment component attached. The investment component comes with fees that mutual funds do not carry — mortality and expense charges, administrative fees, rider charges, and surrender penalties that can lock your money in for a decade.
None of that makes annuities bad. It makes them specific. A fixed annuity that guarantees lifetime income for a retiree with no pension can be exactly the right tool. A variable annuity sold to a forty-year-old who already has a 401(k) and an IRA is almost never the right tool. The difference is in the fit, not the product.
Annuity review sits inside the broader independent insurance review we provide across Northern New Jersey, where the first question is always whether the product is earning its keep.
Fixed, variable, and indexed — what each one does
A fixed annuity pays a guaranteed interest rate for a set period. The rate is low but certain. The fees are minimal. For retirees who need predictable income and cannot tolerate any market risk, a fixed annuity is the simplest answer.
A variable annuity lets you invest in sub-accounts that behave like mutual funds. The value goes up and down with the market. The fees are significantly higher — typically two to three percent a year when you include all the layers. The appeal is usually a guaranteed income rider, which promises a minimum payout regardless of market performance. The details of that guarantee matter enormously and vary by contract.
A fixed indexed annuity credits interest based on the performance of a market index, subject to a cap, a floor, and a participation rate. You do not lose money when the market drops, but your gains are limited. The crediting methods can be opaque, and the real return over time is often lower than the marketing suggests. We read the crediting formula before offering an opinion.
What we look at when we review an annuity you already own
- The total annual cost — mortality and expense charge, administrative fee, fund expenses, rider charges — expressed as a single number you can compare against alternatives.
- The surrender schedule — how long until you can exit without penalty, and how much the penalty costs if you leave early.
- The income rider — what it guarantees, under what conditions, and whether those conditions are realistic for your situation.
- The tax treatment — whether the annuity is inside a retirement account (where the tax deferral is redundant) or outside one, and what the tax cost of surrendering would be.
- The opportunity cost — what the same money would have done in a low-cost portfolio over the same period, net of taxes and fees.
Annuities often arrive in the picture alongside retirement planning decisions. For the broader conversation about how guaranteed income fits inside a retirement plan, see our approach to retirement income sequencing.
“The problem with most annuities is not the product. It is that nobody ever explained the contract in plain English before the client signed it.”
What working with us looks like
First meeting — bring the contract
We sit down with the annuity contract and the most recent statement. We read the fee schedule, the surrender terms, the income rider conditions, and the crediting method. We translate every page into plain language and tell you, honestly, whether the contract is working for you or working against you.
Written review with a clear recommendation
You leave with a written document that names the total annual cost, the surrender timeline, and the realistic income the rider will produce. If keeping the annuity is the right answer, we say so. If exiting makes sense — and the tax and surrender costs justify it — we map the exit plan. We sell nothing either way.
A note on fit
When this might not be right for you
Annuity review work is not the right fit for everyone:
- Anyone looking for a firm that sells annuities. We do not sell any insurance products.
- Anyone who wants a free review in exchange for buying a replacement product through us. We have no products to sell.
- Anyone whose annuity is inside the surrender window with a high penalty and no urgent reason to exit. We may advise patience rather than a review fee.
If any of those describe your situation, we will say so on the first call.
Frequently asked questions
Do you sell annuities?
No. We are fee-only fiduciaries. We sell no annuities, earn no commissions from insurance carriers, and take no referral fees. That independence is exactly why families ask us to review annuities they already own.
How much do variable annuities actually cost?
Most variable annuities cost between two and three percent a year when you total the mortality and expense charge, the fund expenses, the administrative fee, and any rider charges. That number is rarely presented as a single figure in the contract, which is why many owners do not know it.
Should I surrender my annuity?
It depends on the surrender penalty, the tax cost, and whether the annuity is doing something useful for the plan. We model the exit cost against the cost of keeping it, and we recommend the path that leaves the most money with the client. Sometimes the honest answer is to wait out the surrender period.
Is an annuity inside an IRA a good idea?
Usually not. An IRA already provides tax deferral, so the annuity's tax benefit is redundant. The additional fees of the annuity — mortality charges, rider costs — reduce the return compared to a low-cost mutual fund in the same IRA. There are narrow exceptions, but the general rule holds.
What is a guaranteed income rider worth?
That depends on the specific terms. Some riders guarantee a meaningful income floor that protects against longevity and market risk. Others have conditions — age requirements, withdrawal restrictions, step-up formulas — that make the guarantee less valuable than it sounds. We read the rider language before offering an opinion.
How long does an annuity review take?
The initial meeting is about ninety minutes. The written review typically follows within a week. For straightforward contracts the work is fast. For variable annuities with multiple riders and sub-accounts, the review takes longer because there is more to read.