Annuities: Things to Know Before You Buy

Thinking about retiring and you are tempted by a compelling annuity pitch? Before you sign the dotted line, let’s take a stroll through the essentials, so you feel comfortable and confident about your retirement choices and don’t end up with a case of buyers remorse.

1. Start With Realistic Expectations

Annuities can deliver valuable benefits—predictable income, tax-deferred growth, optional guarantees—when they fit your goals and are structured properly. But like any insurance-based product, the details (and costs) deserve a close look.

2. How Sales Incentives Work

Insurance companies may pay the professional who sells an annuity a commission that can be a meaningful percentage of the premium. This compensation is perfectly legal and disclosed in the contract, yet it can create a conflict if the recommendation is driven more by payouts than by your priorities.

3. Liquidity & Surrender Periods

Many—but not all—deferred annuities include a surrender schedule: a declining charge applied if you withdraw more than the contract’s free‑withdrawal allowance (often 10% of the account) during the first several years. Charges might start in the mid‑single digits and typically fall to zero over time. Some contracts waive penalties for specific situations (e.g., nursing‑home confinement). Immediate annuities have no surrender period because payments start right away.

4. Ongoing Costs

Annuity expenses vary widely. Mortality & expense fees, rider charges, and investment sub‑account expenses can all add up quickly and it is important to always request a complete fee illustration and compare it with simpler alternatives.

Illustrative example (hypothetical): A $500,000 variable annuity with a 2.75 % all‑in annual cost could pay roughly $13,750 in fees during a year when markets are flat.

Tax implications, non-qualified annuity verses brokerage account

Note: Actual costs will differ by contract, and performance may offset (or magnify) the impact.

5. “Suitable” vs. Fiduciary Advice

Some insurance agents are held only to a suitability standard, meaning the product must fit your general situation. Others—such as fee‑only advisers and certain dual‑registered professionals—act as fiduciaries and must place your interests first. Before buying, confirm in writing whether your adviser is acting as a fiduciary, and ask if they earn a commission on this sale.

6. Tax Considerations

Qualified dollars (IRA, 403(b), etc.): Annuity wrappers do not add new tax advantages, and every dollar you withdraw is ordinary income.

Non‑qualified dollars: Earnings are taxed first at ordinary rates unless you annuitize. Unlike stocks, there is no step‑up in basis for heirs.

7. Common Contract Types—At a Glance

9. Exploring Alternatives

Delaying Social Security, building a low‑cost bond ladder, or using immediate annuities for essential expenses are just a few strategies that can complement—or replace—a complex deferred annuity. A fee‑only fiduciary can model the trade‑offs for your situation.

10. Need a Second Opinion?

Fortress does not sell annuities. We are happy to review an existing or proposed contract, translate the fine print, and show how it fits within a comprehensive retirement plan—so you can decide with confidence.

The Bottom Line

Annuities can provide stability and lifetime income, but they are not one‑size‑fits‑all. Scrutinize costs, liquidity, tax impact, and the adviser’s incentives. Then weigh them against simpler, transparent solutions before you sign.

About Fortress

Fortress Financial Group is an independent, fee-only fiduciary wealth-management firm in Rochester, MN. Our advisory team includes CERTIFIED FINANCIAL PLANNER™ (CFP®) professionals and other wealth-management specialists who deliver objective, commission-free advice. We pair proactive, lifetime tax planning with technology-powered clarity and personal care to help pre-retirees and retirees keep more of their wealth and make confident choices about when—and how—they transition into, and live in, retirement. Schedule a conversation to learn why more than 300 families in Southeast Minnesota and across the country trust Fortress with their financial future.

Disclosures

Fortress Financial Group LLC (“FFG") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where FFG and its representatives are properly licensed or exempt from licensure. For current FFG information, please visit the Investment Adviser Public Disclosure website atwww.adviserinfo.sec.gov by searching with FFG’s CRD# 315329

This content is provided for informational purposes only and should not be construed as legal, tax, or investment advice. No investment strategy can guarantee success or prevent loss.

Any example provided is hypothetical and for illustrative purposes only. It does not represent any specific product or investment

Information provided is not intended as tax advice. Please consult with a qualified tax advisor for personalized guidance