10 Annuity dos and don’ts to consider

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When you make any financial decision, it helps to have a two-part checklist that asks:

• Why am I making this investment & does it fit into my financial goals?
• What are the risks or trade-offs I should look out for?
  

There’s no pre-set limit to how many annuities you can have. It’s important to understand the differences between products when choosing one. Different types of annuities can serve different purposes in a retirement plan. Many buyers focus on a single feature or headline rate and overlook how an annuity aligns with their financial goals.

This guide covers general annuity dos and don’ts, common pitfalls to avoid, and how you can make the most of your money.

The dos of buying an annuity

When choosing an annuity, consider the following to help separate facts from common misconceptions and ensure you pick the right option for your retirement plan.

Diversify your financial plan

During the investment and retirement phases, fixed annuities can work well as part of a diversified investment plan. They can add stability to a portfolio that also holds riskier investments, such as individual stocks and ETFs.

Investors may also want to contribute to an annuity at the same time as contributing to a retirement account like an IRA or 401(k). Many retirees use annuity income to supplement Social Security or dividend stock payments. This can help reduce reliance on a single income source.

Use annuities to protect against market volatility

Certain annuities can protect you from stock market swings. With Gainbridge fixed annuities, you get 100% principal protection and a guaranteed interest rate. When you sign your contract, you know exactly how much money will be available at maturity – provided no withdrawals are taken.

For annuity buyers nearing or in retirement, this protection can help guard against sequence-of-returns risk. Market losses early in retirement can damage long-term income. Instead of worrying if market performance will impact your retirement income, fixed annuities can provide a steady source regardless of market volatility.  

Understand how your annuity contract works

An annuity is a contract between you and an insurance company. Before buying one, pay attention to the commitment term and withdrawal rules. Check how your insurer will structure payouts. Pay attention to surrender charges, fees for riders, and whether there are caps and participation rates. These details determine how much flexibility and growth potential you truly have.

Evaluate your liquidity needs

Insurers design annuities as long-term retirement planning tools. Most contracts allow penalty-free access to a portion of your balance each year, but some levy additional fees and surrender charges for larger withdrawals. Plus, if you take money before age 59-½, the IRS may apply an early withdrawal penalty. The Gainbridge FastBreak™ annuity avoids this IRS penalty because it doesn’t offer tax deferral. No tax deferral means you are taxed annually on any interest earnings. This structure can help if you need some flexibility to access funds. Withdrawals above the 10% free withdrawal amount are subject to a withdrawal charge and/or market value adjustment.

Many annuity owners keep an emergency fund or short-term savings to avoid accessing their annuity too soon.

Compare rates and financial strength

Not all annuity companies are the same. Interest rates vary across insurers. So does the strength of the company that backs your annuity contract. Always compare products and rates across providers and review financial strength ratings from credit agencies such as AM Best. Strong ratings, like Gainbridge’s A- (Excellent), signal a company’s ability to meet its long-term obligations.

The don’ts of buying an annuity

Annuities can fall short of expectations if buyers overlook the following potential cons and long-term trade-offs.

Don’t ignore the fee structure

Some annuities — especially variable annuities — come with fees that can quickly eat away at returns. Before buying an annuity, understand exactly how fees — such as mortality and expense charges, management fees, and rider costs — work and affect your growth or income over time. Generally, fixed annuities have simpler structures, making them a more straightforward choice if you’re concerned with having a reliable source of income in retirement.  

Don’t chase teaser interest rates

Don’t be tempted by a high introductory interest rate. Some annuities offer short-term teaser rates that drop after the first year. These rates can make a contract look more attractive than it is. With Gainbridge, you get the advertised interest rate for your entire annuity term.

Don’t withdraw early without understanding penalties

Withdrawing money from an annuity before the surrender period may lead to penalties and reduce your earnings. The IRS may tax early withdrawals from tax-deferred annuities if you take them before age 59-½.

Don’t assume all annuities are alike

There are several types of annuities, and they vary in purpose and risk. For example:

• Variable annuities expose you to market risk.
• Fixed annuities guarantee growth.
• Immediate annuities convert a lump sum into income right away.
• Deferred annuities grow first and pay later.
  

Choosing an annuity without understanding the distinctions can lead to a mismatch with your goals. Review how each product works before committing.    

Making the most of your annuity

Before choosing an annuity, consider your financial goals. If you want predictable growth, fixed annuities can make the most sense, especially when added to a portfolio of stocks, ETFs, and other riskier investments. This type of annuity doesn’t expose you to stock market risk like a variable annuity does.

Also consider your retirement income needs. Many retirees rely on the predictable income stream from an annuity to complement other sources such as a stock portfolio, Social Security, and pensions.    

To get the most value from annuities:

• Read your contracts carefully.
• Compare rates, fees, and other charges.
• Evaluate the financial strength and stability of your annuity company.
  

Annuities work best when you know what you own and why you own it as part of a long-term financial strategy.

Secure predictable retirement income with Gainbridge

Insurers may not design annuities for timing the market or chasing returns. They’re typically meant for long-term retirement planning. An annuity can work well when you choose products that align with your financial goals. If you’re worried about losing money, a Gainbridge fixed annuity guarantees 100% principal protection, competitive interest rates, and steady retirement income payouts.

Gainbridge makes comparison easy. Our digital-first platform gives you a side-by-side comparison of our FastBreak™ and SteadyPace™ annuities to see how they can fit your financial needs and goals.

Explore Gainbridge today to learn how our annuities combine predictable growth with a guaranteed income stream in retirement.

FAQ

What should I do before buying an annuity?

Before buying an annuity, consider your broader retirement plan. Ask yourself if you can handle the risk of losing money or if you want guaranteed growth and retirement income. Understand the different types of products available — such as deferred annuities, immediate annuities, and indexed annuities — then choose the ones that best align with your risk profile, timeline and future needs.

What should I avoid when choosing an annuity?

Avoid focusing on teaser first-year rates, ignoring fees and commissions, and buying annuities that don’t align with your liquidity needs. Pay attention to how withdrawals can create taxable events and trigger fees and penalties. Don’t assume that all annuities grow and pay the same way. Structure matters, and your contract should clearly spell the terms out before you sign.  

How should I manage an annuity after buying one?

Gainbridge lets you manage your annuity account entirely online. Monitor your contract terms, understand withdrawal rules, and ensure other money moves you make align with your overall strategy. Annuities can work best when part of a diversified investment approach.  

This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.

FastBreak™ and SteadyPace™  are issued by Gainbridge Life Insurance Company, a Delaware-domiciled insurance company with its principal office in Zionsville, Indiana and is licensed and authorized to do business in 49 states (all states except New York) and the District of Columbia. Products and/or features may not be available in all states. Guarantees are based on the financial strength and claims paying ability of the issuing insurance company. Please visit gainbridge.com for current rates, full product disclosure and disclaimers and additional information.

A.M. Best Company assigns ratings from A++ to S based on a company's financial strength and ability to meet obligations to contract holders. A- (Excellent) is the 4th highest of 16 ratings. Visit www.ambest.com. Ratings are current as of 2/18/2025 and subject to change

Withdrawals of taxable amounts are subject to ordinary income tax and if made before age 59½, may be subject to a 10% federal income tax penalty. Distributions of taxable amounts from a nonqualified annuity may also be subject to an additional 3.8% federal tax on net investment income.

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