Annuity FAQ

Answers to the questions we hear every day.

Annuity sales have roughly doubled over the past five years, and with that growth has come a lot of confusion — most people can’t correctly define what an annuity even is, let alone tell a MYGA from a GLWB. Below are answers to the questions we hear most often from clients in New Hampshire, Massachusetts, and beyond. If you don’t see your question here, call us directly. Reviews are always free.

What’s the difference between a GLWB rider and annuitizing?
Annuitizing means converting a lump sum into a stream of payments and giving up ownership of that money in the process — it’s irrevocable from day one. A GLWB rider works differently: you keep the account and its value, while the rider guarantees you can withdraw a set percentage of a separate, protected income base for life, even if the actual account value eventually runs out. Anything left in the account when you pass away goes to your beneficiaries, which typically doesn’t happen with a straight annuitized SPIA. The trade-off is that GLWB riders usually pay a lower starting income than immediate annuitization would, plus an ongoing rider charge.

What is a deferred income annuity (DIA), and what is a QLAC?
A DIA is essentially a SPIA where you agree today to start payments at a future date you choose, typically five to 20 years out, instead of immediately. Unlike a GLWB, a DIA does involve annuitizing — you’re giving up the lump sum for the promise of future income, just on a delayed timeline. In exchange for waiting, DIAs typically pay more than an immediate SPIA would for the same premium. If you fund a DIA with IRA money, it’s often structured as a Qualified Longevity Annuity Contract (QLAC) — a specific IRS-recognized category that lets you exclude that portion of your IRA from Required Minimum Distribution calculations until payments begin.

What is a RILA?
A registered index-linked annuity (RILA) is a hybrid between a fixed indexed annuity and a full variable annuity. Like an FIA, it tracks a market index and generally offers higher caps than a traditional FIA. Unlike an FIA, it only offers partial downside protection rather than a full principal guarantee — you’re accepting some risk of loss in exchange for more upside potential.

Can I lose money in an annuity?
It depends on the type. Fixed annuities (MYGAs) and fixed indexed annuities (FIAs) protect your principal from market loss — the worst case in a down year is 0% growth, not a loss. Variable annuities are different: your account value is invested in mutual fund-like subaccounts and can lose value if those investments decline. Across every annuity type, you can also lose money through fees, and specifically through surrender charges if you withdraw more than your contract allows before the surrender period ends.

Costs and Fees

What does a GLWB rider typically cost?
Most GLWB riders carry an annual charge in the neighborhood of 0.75% to 1.5% of the income base, with roughly 1% being the figure retirement researchers commonly cite. On a variable annuity specifically, that rider charge usually isn’t the only cost — it stacks on top of the annuity’s base contract charges (often around 2%) and the underlying fund’s own expenses, and the combined total can run 3% to 4% a year in some cases. Always ask for the full, itemized fee picture, not just the headline rider percentage.

Are “no fee” annuities really free?
No. An FIA marketed as having no fees isn’t actually free — the cost typically shows up as a lower cap or participation rate instead of a line-item charge. There’s no such thing as a genuinely free guarantee; if you don’t see an explicit fee, ask where the cost is hiding.

What is a surrender charge, and how long does it last?
A surrender charge is a penalty for withdrawing more than your contract’s free-withdrawal allowance during the surrender period. That period varies widely by product and carrier — anywhere from a couple of years to well over a decade — with fixed indexed annuities tending to run longer and some variable annuity contracts carrying shorter, lighter schedules.

One point in a GLWB’s favor: taking your guaranteed withdrawal amount as intended, up to what the rider allows, typically doesn’t trigger a surrender penalty even during the surrender period. It’s specifically withdrawing beyond that guaranteed amount that causes problems — both a penalty and, often, a reduction in your future guaranteed benefit.

Taxes and Required Distributions

How are annuity withdrawals taxed?
It depends entirely on how the annuity was funded.

Do annuities count toward Required Minimum Distributions?
Qualified annuity payments count toward your RMDs, the same as any other IRA or 401(k) distribution. Non-qualified annuities, funded with after-tax money, aren’t subject to RMDs at all since they were never part of a tax-deferred retirement account in the first place.

Can a QLAC help with RMDs?
Yes — that’s one of its main advantages. Money used to fund a QLAC inside an IRA is excluded from RMD calculations until the QLAC’s payments actually begin, which can be a meaningful tax-planning tool if you’re looking to reduce your taxable RMDs in the years before you need that income.

Is there an extra tax on annuity gains for higher earners?
Possibly. If your income is high enough, the taxable gain portion of non-qualified annuity withdrawals may also be subject to the additional 3.8% Net Investment Income Tax, on top of ordinary income tax. Worth flagging to your tax preparer if that applies to you.

Accessing Your Money

What happens if I withdraw more than my GLWB’s guaranteed amount?
Excess withdrawals can lower or reset the guarantee itself, not just reduce your account value. That’s a meaningful difference from a normal withdrawal — it can permanently shrink the income the rider promises you going forward, so it’s worth knowing your contract’s specific withdrawal rules before you need to use them.

What happens if I die before a deferred income annuity starts paying out?
With a standard DIA, that money is simply gone — there’s no refund and nothing passed to beneficiaries unless you specifically added a death benefit rider, which typically costs extra and guarantees your beneficiaries at least recover what you put in.

What happens to my annuity when I die?
It depends on the product and the payout option you chose. A life-only SPIA or fully annuitized DIA typically stops paying at death, with nothing left for beneficiaries. A GLWB rider is different — since you retained ownership of the account, whatever remains in it passes to your beneficiaries. Joint-life payout options extend income to a surviving spouse but typically pay less than a single-life option from the start, sometimes by 12% to 25% or more.

Choosing the Right Annuity

How much of my savings should go into an annuity?
There’s no universal answer, but the most effective approach for most people isn’t picking one annuity type — it’s bucketing money by purpose. A common framework: use guaranteed income sources (Social Security plus annuities) to cover essential expenses, and keep the remainder in growth-oriented investments. The right split depends entirely on your income needs, time horizon, and how much you want available for beneficiaries.

What should I ask before buying an annuity?
Start with what you’re actually trying to accomplish — guaranteed income, growth, legacy, or some combination — before looking at specific products. Ask for the full itemized fee breakdown, not just a headline number. Ask about the surrender charge period and what counts as a free withdrawal. Check the insurer’s financial strength rating (A.M. Best, S&P, or Moody’s). And confirm whether the person advising you is properly licensed and acting as a fiduciary. Annuities are often sold rather than chosen — pushed as whatever a broker happens to be offering that month rather than matched to what someone actually needs. Starting from your goal, not the product, is the best protection against that.

Working With an Agent

Should I work with a captive agent or an independent agent?
Worth asking directly. A captive agent can only sell products from one company, which limits what they can show you regardless of what actually fits your needs. An independent agent can shop across multiple carriers to find the product that matches your specific goal, rather than whatever one company happens to offer.

What does it mean that Gilman Agency is an independent agent?
An independent agency is not contractually restricted to any single insurance carrier. We can compare annuity products across multiple companies to find the one that best fits your income needs, your time horizon, and your legacy goals. A captive agent represents only one company and can only show you that company’s products.

Our reviews are always free. We are compensated by the insurance companies when you enroll, and that compensation does not change based on which product you select.

This information is general in nature and not intended as tax or legal advice. Annuity rates, caps, fees, and payout figures change frequently and vary by carrier, state, and product. Annuity guarantees are backed solely by the financial strength and claims-paying ability of the issuing insurance company. Consult your tax advisor regarding your specific situation.

Sources: Internal Revenue Service, Publication 939 (General Rule for Pensions and Annuities) and IRC Section 72 guidance on non-qualified annuity taxation; Fidelity Investments, “Guaranteed Lifetime Withdrawal Benefit (GLWB) | Deferred Variable Annuities”; Morningstar, “How Guaranteed Lifetime Withdrawal Benefits Work”; U.S. Securities and Exchange Commission, GLWB rider filings (EDGAR); David Blanchett and Michael Finke, “What Is Lifetime Income Insurance Worth?” and Bradley Rosen, “Considering Annuities? How to Find the Right One for You,” both via Kiplinger; AARP, “7 Key Things to Know About Annuities,” citing LIMRA industry data; Vanguard, “Are Annuities Right for Me?”; U.S. News & World Report, “Are Annuities a Good Investment? 10 Things to Know Before Buying”; Investopedia, “Ultimate Guide To Buying Annuities for Retirement,” citing Zach Swad, CFP, and Jordan Gilberti, CFP; industry rate reporting on 2026 MYGA, SPIA, and fixed indexed annuity rate trends.