Turn your savings into lifetime income.

An annuity is a contract between you and an insurance company, built for retirement and other long-term goals. You fund it with either one lump-sum payment or a series of payments over time. In exchange, the insurer commits to paying you a regular income — starting right away or at a future date you choose.

You can also choose to take out your contract's full value in one lump sum instead, though doing that may trigger surrender charges, taxes, and tax penalties.

Most people buy annuities to help manage their income during retirement. They typically offer three core benefits:

• Tax-deferred growth. You don't pay taxes on interest or investment gains inside the annuity until you withdraw money, start receiving income, or a death benefit is paid out.
• Guaranteed income. You can set up periodic payments for a fixed number of years, for the rest of your life, or even for the life of your spouse or partner.
• Death benefits. If you pass away before payments begin, your named beneficiary receives at least the annuity's current value — sometimes more.

With an immediate annuity, you make a single payment and typically begin receiving income within a year of purchase.

With a deferred annuity, you contribute a lump sum or flexible payments over time, and your money grows tax-deferred before income begins. The growth period is called the accumulation phase; the period when payments start is called the payout phase.

An insurer's promises under an annuity contract depend on its financial strength and its ability to pay claims. If the insurance company runs into serious financial trouble, it may not be able to pay you what was promised.

That's why it's wise to check the financial strength ratings and reputation of any insurer before buying — and to review each contract's costs, risks, and features with a financial professional.

Listed from lowest to highest risk (some products combine features of more than one):

• Fixed annuities — guarantee your money will earn at least a minimum interest rate set by the insurer. It may earn more, but only the minimum is guaranteed.
• Fixed indexed annuities — earn interest based partly on the performance of a market index (like the S&P 500) over a set term. Interest is credited at the end of the term, and your rate can never be less than zero — even in a down market.
• Registered index-linked annuities (RILAs) — contract value rises or falls with an index's performance. Unlike a fixed indexed annuity, you can lose money, though the insurer typically sets limits on both gains and losses.
• Variable annuities — you direct contributions into a menu of mutual-fund-style investment options. There are no limits on gains or losses; returns depend entirely on fund performance.

• Fixed: Least risky, lowest potential return. Guaranteed growth at a fixed rate. Generally no risk of loss apart from surrender charges on early withdrawals.
• Fixed indexed: Slightly riskier with more return potential. Growth tied to an index, but capped. No market loss risk beyond surrender charges.
• RILA: Moderate to high risk. You can lose money if the index performs poorly, if you withdraw early from an investment term, or through surrender charges. Some options can carry unlimited risk.
• Variable: Highest risk and highest potential return. Losses are potentially unlimited, based on the funds you select, plus surrender charges may apply.

• Fixed: Long-term horizon, very low risk tolerance, wants to protect assets and lock in a set, guaranteed return.
• Fixed indexed: Long-term horizon, low risk tolerance, wants asset protection with moderate return potential.
• RILA: Long-term horizon, moderate-to-high risk tolerance, willing to accept some risk in exchange for growth.
• Variable: Long-term horizon, moderate-to-very-high risk tolerance, prioritizes growth over protection.

All annuities are insurance products regulated by your state insurance regulator. Some are also securities:

• Fixed and fixed indexed annuities — insurance products only. Complaints go to your state insurance commission.
• RILAs and variable annuities — both insurance products and securities. They must be registered with the SEC, come with prospectuses, and complaints can be directed to the SEC as well.

Another SEC-registered type is the registered market value adjustment (MVA) annuity, where the insurer pays a fixed rate over a set period but may adjust your contract's value — often downward — if you withdraw early.

If you're buying through a broker or adviser, you can verify their registration and any disciplinary history using the SEC's free professional background-check tools.

Before you buy:

• Carefully read everything you're given, including the contract and any prospectus.
• Ask questions about anything you don't understand.
• Consider consulting a financial professional about whether the product's features, benefits, risks, and fees fit your situation and goals.

After you buy:

• Read any additional documents you receive and confirm they match your understanding.
• Ask your financial professional to explain anything unclear.

State law gives you a window — usually 10 to 30 days after receiving your contract — to cancel your purchase. This is known as the "free look" period. Your contract must clearly state how long your free look period lasts and how to return the contract if you decide not to keep it.

Many deferred annuities let you withdraw during the accumulation phase. Taking everything out at once is called a surrender and ends the contract. But early withdrawals can carry real costs:

• Surrender charges. Withdrawing within a set number of years after purchase or contribution can trigger a fee that reduces both your value and your return.
• Taxes. Withdrawals may be taxable, and taking money out before age 59½ can add tax penalties on top.
• Contract adjustments. Withdrawing before the end of an interest term may forfeit earned interest. Insurers may also apply a Market Value Adjustment or Interim Value Adjustment — often negative — on top of any surrender charge. RILAs and registered MVA annuities both include these features.
• Reduced benefits. Withdrawals can shrink the value of features like death benefits — sometimes by more than the amount you actually withdrew.

An exchange means using the value of your current annuity to buy a different one. If certain tax rules are followed, the swap itself may not trigger taxes — the tax deferral simply continues under the new contract.

But be careful. Some financial professionals earn a commission by moving you into a new product. Only exchange after comparing the features, fees, rates, and risks of both contracts and confirming the new one is genuinely better for you. Remember: exiting your old annuity may trigger a surrender charge, and the new one may start a fresh surrender-charge period.

Be cautious here. A key advantage of an annuity is tax-deferred growth — but a traditional 401(k) or traditional IRA is already tax-deferred. Placing an annuity inside one gives you no extra tax benefit; it will simply be taxed like any other investment in the plan.

If a professional suggests this, ask specifically how the annuity fits into your overall financial picture and what benefit it adds beyond what the retirement account already provides.

Fees reduce your annuity's value no matter how they're charged. They come in two forms:

• Explicit fees — deducted directly from your contract value. You'll typically see these on your account statement.
• Implicit costs — harder to spot, but just as real. Instead of billing you, the insurer may simply credit you less interest than it earns, or cap how much your annuity can gain.

For example, in a fixed indexed annuity, the insurer might credit you 3% while earning 4% on your money. In indexed products and RILAs, caps on gains are the price of the downside protection you receive. These implicit costs cut into your return just as much as a direct fee would.

• Base contract fee. Usually a percentage of contract value — e.g., 1.25% on a $300,000 annuity is $3,750 per year. This pays the insurer for the risk it takes on, and part of it may fund the commission of the person who sold you the annuity.
• Underlying fund fees. In a variable annuity, the mutual funds you pick charge their own fees on top of the insurer's charges.
• Optional benefit fees. Extras like enhanced death benefits or guaranteed minimum income benefits typically cost additional ongoing fees.
• Tax penalties. Withdrawing before age 59½ may mean a 10% IRS penalty in addition to regular taxes owed.
• Implicit fees. Reduced interest crediting or gain caps, as described above.

• Surrender charges. A fee for taking some or all of your money out within a set number of years of purchase or contribution. These charges generally decrease the longer you hold the contract.
• Contract adjustments. Market Value Adjustments or Interim Value Adjustments applied when you withdraw or transfer money before the end of a specified period. These are often negative, can significantly lower your annuity's value, and apply on top of any surrender charge.

Tax rules for annuities are complex and change over time — and state taxes may apply too. A tax adviser can help you understand the full picture before you commit.

• Which type fits my goals? Compare fixed, fixed indexed, RILA, and variable options against your specific needs.
• What are all the fees? Ask about upfront, surrender, ongoing, and implicit costs — and any caps on performance.
• Can I leave the money in long enough? Find out how long you must hold the annuity to avoid surrender charges, tax penalties, and contract adjustments.
• How does the interest or investment performance actually work? Understand the mechanics before you can judge the growth potential and risk.
• What is the death benefit? Ask how it's calculated in both the accumulation and payout phases, how beneficiaries receive it, and the tax implications.
• How strong is the insurance company? Its financial strength and reputation determine whether it can keep its promises to you for decades.
• How does this fit my overall plan? Weigh the annuity against your goals, risk tolerance, cash needs, and other investments.

Optional benefits usually cost extra — either a purchase fee, an ongoing fee, or both. Before adding one, ask:

• What conditions must I meet to keep the benefit? (Some restrict which investment options you can use.)
• How likely am I to actually receive it? Some "guaranteed benefits" are contingent — they only pay off in unlikely scenarios, such as severe market losses or an unusually long life. They may buy peace of mind, but you could be paying for a benefit that never delivers a financial return.

If you don't know the answers — or have questions beyond these — ask a licensed financial professional before signing anything.