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What is an annuity, and what do I need to know?

An annuity is a contract between a client (you) and an insurance company. It can be a retirement tool and a key part of your financial strategy. Generally speaking, annuities are designed to:

  • Accumulate savings
  • Provide income to clients or their beneficiaries
  • Generate tax-efficiency

What are some fundamental aspects of annuities?

When thinking about how to implement an annuity into your financial planning strategy, know that it helps to diversify your retirement nest egg and that growth within an annuity is tax deferred.  

There are generally two phases to an annuity:

  1. The Accumulation Phase
    • You are paying money into the annuity
    • Can be funded with single or flexible premiums
    • Growth is tax-deferred 
  1. The Distribution Phase
    • You are receiving money from the annuity
    • Two methods for income:
      1. Withdrawal – Lump sum or over time
      2. Annuitization – Guaranteed income stream

One of the most common retirement concerns is running out of money. Generating a secure retirement paycheck is critical for everyone, and annuities are one of the solutions that can help with that — by creating an income stream you can’t outlive. This contractual lifetime income is unique to annuities.

Annuities you’ll find with F&G and what they mean

F&G specializes in fixed annuities, fixed indexed annuities and immediate annuities.

Fixed annuities (FAs) can provide a fixed rate of return over a period of time and a guarantee from loss.

Fixed indexed annuities (FIAs) offer the similar guarantees and opportunity for principal protection as FAs, but provide the opportunity for earned interest linked to index and exchange-traded fund (ETF) performance, without direct investment in these indices.

An immediate annuity converts a lump sum amount paid to you over a defined period of time. It can be customized to pay out over that period of time or for your lifetime — or even a combination of both.

Choosing one annuity over the other

The type of annuity you choose can depend on whether you’re accumulating for retirement, or if you’re in the distribution phase of your retirement. You can lead the conversation with a financial professional on what product ultimately makes the most sense for you based on:

  • Your financial goals and objectives
  • What other financial vehicles you already have in your retirement portfolio
  • Where you’re at in the process 

Choosing how to fund an annuity

Annuities are categorized as Qualified or Non-Qualified based on the tax status of the money used to fund them. These terms are defined by the IRS and can be summarized as:

Qualified refers to an annuity that is funded with pre-tax dollars (e.g., retirement plans: Traditional IRA, TSA, 401(k), Profit Sharing Plans, etc.)

Non-qualified refers to an annuity that is funded with after-tax dollars (e.g., money from a checking account, trust, brokerage account, etc.)

Which is better?

It depends on your financial situation and the tax strategies that you decide with your financial and tax professional. For non-qualified plans, during the distribution phase taxes may be owed on investment gains, but that tends to be a relatively smaller portion of your account value. In general, the non-qualified plans give the benefit of tax-free income, while qualified plans offer immediate tax savings during your employment years because the tax hit on your take-home pay will be reduced.

Potential penalties for early withdrawals

Deferred annuities, such as FAs and FIAs, have surrender charges if you withdraw your money early. These charges are typically based on a declining schedule that is most usually 10 years or less.

It is common that there is a liquidity, or withdrawal, provision allowing you to take annual penalty-free withdrawals up to a certain annual limit. This is either the interest credited, a percentage of your premium or a percentage of your account value. Above the stated limit, excess withdrawals would incur the surrender charge for that given period during the contract.

 Consult with a financial professional to assess your liquidity needs when considering an annuity.

Benefit riders and their associated charges 

Benefit riders are provisions additional to the base annuity contract that can be used to enhance the income the annuity provides for you and the legacy you could leave to your beneficiaries. The additional guarantees provided by income riders and death benefit riders come in many different options.

For F&G, charges are associated with most FIA products that include these additional benefits. These benefits are designed to meet different needs. Being aware of the associated charges opens the conversation about the relative value of these additional guarantees and how such additions can fit into your financial goals.

There are a lot of benefits for annuities, and taking the time to review those additional benefits can help you build a retirement portfolio that meets your financial goals by providing long-term growth, enhanced legacy and income.


With annuities, you’re able to manage how much income and risk you are comfortable with. If outliving your retirement savings is one of your concerns, annuities could be the answer you have been searching for.

Talk with a financial professional to see if an annuity fits your financial needs.

Fidelity & Guaranty Life Insurance Company offers a diverse portfolio of fixed and indexed deferred annuities and optional additional features. Before purchasing, consider your financial situation and alternatives available to you. Your Fidelity & Guaranty Life Insurance Company financial professional can help you determine the suitable alternatives for your goals and needs, or visit us at for more information.

Information provided regarding tax or estate planning should not be considered tax or legal advice. Consult your own tax professional or attorney regarding your unique situation.

Surrender charges [and market value adjustment] may apply to partial and full surrenders. Surrenders may be taxable and may be subject to penalties prior to age 59 ½.