{"id":3370,"date":"2025-09-04T10:31:25","date_gmt":"2025-09-04T10:31:25","guid":{"rendered":"https:\/\/goldenroosterinsurance.com\/blog\/?p=3370"},"modified":"2025-12-29T18:12:21","modified_gmt":"2025-12-29T18:12:21","slug":"how-do-annuities-work","status":"publish","type":"post","link":"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/","title":{"rendered":"How Do Annuities Work? Everything You Need to Know"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Maria has been a high school teacher for most of her life, and now that she is feeling that her retirement is around the corner, it got her to think about a lot of things. Her biggest worry was, what if she outlives all of her savings.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, we started talking about how do annuities work.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Yes, she was set, had retirement accounts, careful with money but even after years of saving, the numbers that she saw didn\u2019t give her peace of mind.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#What_Is_an_Annuity\" >What Is an Annuity?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#How_Do_Annuities_Work\" >How Do Annuities Work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#Types_of_Annuities_Explained\" >Types of Annuities Explained<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#Annuity_Payout_Options\" >Annuity Payout Options<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#Pros_of_Annuities\" >Pros of Annuities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#Cons_of_Annuities\" >Cons of Annuities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#Who_Should_Consider_an_Annuity\" >Who Should Consider an Annuity?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/goldenroosterinsurance.com\/blog\/how-do-annuities-work\/#Final_Thoughts\" >Final Thoughts<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What_Is_an_Annuity\"><\/span><b>What Is an Annuity?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">It is a financial product sold by insurance companies that turns a lump sum of money (or a series of contributions) into a steady stream of income.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An annuity involves three parties:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The annuitant which is the person who owns the annuity and gets the payments.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Insurer or the insurance company that issues the annuity and pays the income.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The beneficiary, who is the person who receives the remaining benefits if the annuitant passes away.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"How_Do_Annuities_Work\"><\/span><b>How Do Annuities Work?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">It generally have two phases:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Accumulation Phase is when you contribute money into the annuity (either as a lump sum or through regular payments).<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Annuitization Phase is when the insurance company begins paying you back.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Types_of_Annuities_Explained\"><\/span><b>Types of Annuities Explained<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Not all annuities are the same. Here are the main types:<\/span><\/p>\n<ol>\n<li><span style=\"font-weight: 400;\"><strong> Fixed Annuities<\/strong><br \/>\n<\/span><span style=\"font-weight: 400;\">It guarantees interest and payments are predictable which is best for risk-averse retirees who are looking for stability.<br \/>\n<\/span><span style=\"font-weight: 400;\">It is safe and a steady income but the returns of fixed annuities may not keep up with inflation.<\/p>\n<p><\/span><\/li>\n<li><span style=\"font-weight: 400;\"><strong> Variable Annuities<\/strong><br \/>\n<\/span><span style=\"font-weight: 400;\">The payments will depend on the performance of investment sub-accounts which is similar to mutual funds. This is great for investors who are comfortable with market risk.<br \/>\n<\/span><span style=\"font-weight: 400;\">Potential for higher returns but with higher fees, and\u00a0 market volatility.<\/p>\n<p><\/span><\/li>\n<li><span style=\"font-weight: 400;\"><strong> Indexed Annuities<\/strong><br \/>\n<\/span>This is tied to a market index, like the S&amp;P 500, but with the limits on gains and losses, best for those seeking both growth and protection.<br \/>\nSome growth potential with downside protection but the terms are complex and caps on earnings.<\/li>\n<li><span style=\"font-weight: 400;\"><strong>Immediate vs. Deferred Annuities<\/strong><br \/>\n<\/span><strong>Immediate:<\/strong> The payments will start right after you invest which is good for those retiring now.<br \/>\n<strong>Deferred:<\/strong> The payments will begin later which allows your money to grow in the meantime that suits those who are planning ahead of time.<\/li>\n<\/ol>\n<h2><span class=\"ez-toc-section\" id=\"Annuity_Payout_Options\"><\/span><b>Annuity Payout Options<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">When it\u2019s time to receive income, you\u2019ll choose how:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Life-only income means that payments last as long as you&#8217;re alive.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Joint-and-survivor income covers both you and your spouse\/partner.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Period certain can guarantee payments for a set number of years.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Lump sum which you can withdraw all at once, this is less common because it may trigger taxes.<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Pros_of_Annuities\"><\/span><b>Pros of Annuities<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Guaranteed income for life<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Tax-deferred growth while money is inside the annuity<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Protection against outliving your savings<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Customizable features like inflation riders or death benefits<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">No contribution limits (unlike 401(k)s or IRAs)<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Cons_of_Annuities\"><\/span><b>Cons of Annuities<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">High fees and potential surrender charges<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Limited liquidity which makes it hard to access funds early<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Complex contracts that can be confusing for some<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">There is an Inflation risk especially with fixed annuities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A possibility of sales bias from commission-driven advisors<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Who_Should_Consider_an_Annuity\"><\/span><b>Who Should Consider an Annuity?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-3372 size-full\" src=\"https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_39_4565665447.jpg\" alt=\"An elderly couple, both retirees, focused on a tablet computer in a cozy setting.\" width=\"1146\" height=\"765\" srcset=\"https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_39_4565665447.jpg 1146w, https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_39_4565665447-300x200.jpg 300w, https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_39_4565665447-1024x684.jpg 1024w, https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_39_4565665447-768x513.jpg 768w, https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_39_4565665447-150x100.jpg 150w\" sizes=\"auto, (max-width: 1146px) 100vw, 1146px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Annuities may be for you if:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A retiree or near-retiree seeking predictable lifetime income<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">A conservative investor worried about market volatility<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Someone who has maxed out other retirement accounts and wants additional tax-deferred growth<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">But they may not be right if you\u2019re:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You are a younger investor with decades to grow wealth<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You are someone who values liquidity and flexibility<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You are a DIY investor who prefers low-cost, transparent investments<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Final_Thoughts\"><\/span><b>Final Thoughts<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Annuities aren\u2019t a one-size-fits-all kind of thing like others think. For Maria\u2019s case, it provided her peace of mind and a reliable income stream which she was seeking. In some cases, the fees and lack of flexibility may outweigh the benefits. An annuity should not complicate it but instead it must complement your retirement plan.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Maria has been a high school teacher for most of her life, and now that she is feeling that her retirement is around the corner, it got her to think about a lot of things. Her biggest worry was, what if she outlives all of her savings. So, we started talking about how do annuities&#8230;<\/p>\n","protected":false},"author":1,"featured_media":3413,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"default","_kad_post_title":"default","_kad_post_layout":"default","_kad_post_sidebar_id":"","_kad_post_content_style":"default","_kad_post_vertical_padding":"default","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[17],"tags":[],"class_list":["post-3370","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-insurance"],"taxonomy_info":{"category":[{"value":17,"label":"Insurance"}]},"featured_image_src_large":["https:\/\/goldenroosterinsurance.com\/blog\/wp-content\/uploads\/2025\/09\/imageedit_32_9600711970-1024x576.jpg",1024,576,true],"author_info":{"display_name":"Janeth Ochoa","author_link":"https:\/\/goldenroosterinsurance.com\/blog\/author\/janeth\/"},"comment_info":0,"category_info":[{"term_id":17,"name":"Insurance","slug":"insurance","term_group":0,"term_taxonomy_id":17,"taxonomy":"category","description":"","parent":0,"count":23,"filter":"raw","cat_ID":17,"category_count":23,"category_description":"","cat_name":"Insurance","category_nicename":"insurance","category_parent":0}],"tag_info":false,"_links":{"self":[{"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/posts\/3370","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/comments?post=3370"}],"version-history":[{"count":4,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/posts\/3370\/revisions"}],"predecessor-version":[{"id":3510,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/posts\/3370\/revisions\/3510"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/media\/3413"}],"wp:attachment":[{"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/media?parent=3370"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/categories?post=3370"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goldenroosterinsurance.com\/blog\/wp-json\/wp\/v2\/tags?post=3370"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}