Annuities Explained - Questions About Annuities and Guaranteed Income

An annuity is a contract between you and an insurance company to provide a reliable income stream for life, the opportunity to grow your money tax-deferred, and which can offer protection for your retirement income stream. To learn more, get an introduction to annuities.

An annuity can provide you with benefits that may not be found in other retirement products. Some annuity benefits include:

• Additional security during retirement. An annuity with lifetime income provides you with a reliable, predictable stream of income for the rest of your life, reducing concerns you might have about living longer than your money. Learn more about guaranteed lifetime income with an annuity.
• Dependable supplemental income. You can choose monthly or annual payments that are guaranteed for your lifetime. You also have the option to guarantee that income for a specific period for your beneficiaries.
• Protection against inflation. You can protect yourself against inflation with an optional cost-of-living adjustment feature. Learn more about inflation protection with an annuity.
• Portfolio diversification. By putting some of your retirement assets in an annuity, you are diversifying the sources of retirement income that you have. Learn more about how an annuity can strengthen your portfolio.

There are two primary reasons people purchase an annuity: for guaranteed income in retirement and for increased tax-deferred retirement savings. You may want to consider an annuity for either reason, or both.

Guaranteed income. An annuity may be a good fit for your lifetime guaranteed income needs if you:

• Want guaranteed retirement income for life
• Want to diversify your retirement income portfolio
• Won’t have enough guaranteed income from other sources (such as Social Security) to cover your basic living expenses in retirement, like food, transportation, healthcare, and housing

Tax-deferred savings. An annuity may be a good fit for your retirement savings needs if you: 

• Have maxed out your other tax-advantaged retirement savings options such as your 401(k) or IRA
• Are looking to save more for your retirement in a way that provides you tax advantages
• Expect to withdraw the retirement funds after age 59 1/2 (to do so beforehand may risk tax penalties and other withdrawal fees)
• Expect your income tax bracket in retirement to be the same or lower than it is today

Determining which type of annuity to buy depends on your investment preferences and your risk tolerance level.

• A fixed annuity provides a guaranteed payout stream that will not fluctuate based on market performance.
• A variable annuity may have more potential for growth and provide more choice and control over investment allocations, but the underlying investments are subject to greater market risk.

Our Financial Advisors can work with you to determine how an annuity may strengthen your overall retirement savings portfolio, discuss investment opportunities, and help you determine the level of risk that is comfortable for you.

To get started, call 1-866-246-5056 or use our online form to request a consultation with one of our experienced Wells Fargo Retirement Professionals who can help assess your situation and connect you with Wells Fargo Advisors.

With lifetime income from an annuity, you convert a portion of your retirement assets into a regular stream of income — usually monthly payments. The payments continue as long as you live (and as long as your spouse/partner lives, if you select that option). 

Additional options allow for a guaranteed number of payments, or a minimum payout, no matter how long you live. These types of options usually carry a fee. Take a look at our annuity comparison chart.

There are several reasons to consider lifetime income with an annuity. If you expect to have a long life (based on personal factors such as your overall fitness and your family history), setting up guaranteed payments for life may be a good fit for you.

Explore if guaranteed lifetime income with an annuity is right for you.

Another approach to determining if you should consider lifetime income with an annuity is to look at your retirement expenses, especially your required monthly expenses such as housing, food, utilities, health care, and insurance. Social Security or a pension can cover all of these expenses but if there’s a gap between these expenses and your current monthly income, you may want the comfort that comes with knowing you have your monthly expenses covered. If you already have these essential expenses covered, you may want lifetime income from an annuity because it provides a reliable cushion each month that can be used for travel, visits with family, or for unexpected expenses.

Two popular types of annuities for guaranteed lifetime income are:

• Immediate Annuity: May be appropriate for you if you want to convert a portion of your accumulated assets into an income stream for life that can start within 30 days to a year after you establish the annuity.
• Variable Annuity With Lifetime Income: May be appropriate for you if you want to prepare now for guaranteed lifetime income payments to start right away or sometime in the future, while keeping your assets invested in the market.

Still not sure? Compare annuities to see what may be appropriate for you.

Yes. While there are benefits to lifetime income with an annuity, there are also other important factors to consider, including:

• Irrevocable contracts. Immediate annuities are generally irrevocable contracts — a lifetime purchase decision — with little or no access to funds. That means that once you purchase an annuity for lifetime income, your funds are committed to pay for your lifetime income payments — no matter how long you (and your spouse, if you choose) live. If you live a long time, you may find that you receive payments in excess of the amount invested. There are beneficiary options available, should you die shortly after the purchase. Income from an immediate annuity may suffer from a loss of buying power over time, due to the rising cost of living. To protect against that, you may wish to consider an annuity that includes a cost-of-living adjustment that ensures that your payments increase over time to keep up with inflation.
• Surrender penalties. Most annuities come with surrender penalties (often called a Contingent Deferred Sales Charge, or CDSC) to discourage early withdrawal. This may mean that you need to pay a fee in order to access your funds. However, most annuities include a feature that allows you to access funds, within certain parameters.
• Withdrawals begin after age 59 1/2. If you withdraw your money before age 59 1/2, you may be subject to a 10% federal tax penalty.
• Tax implications for beneficiaries. Beneficiaries may owe income taxes on any gain in the contract at death of the owner when the money is distributed. Beneficiaries, however, may have several options in how they receive the payout.
• Guarantee by issuing company. The guarantees included with annuities are subject to the claims-paying ability of the issuing insurance company. If the insurance company is unable to meet the claims, the payments may not be made. This means that you want to buy an annuity from a stable and secure company. Wells Fargo actively reviews the products and strength of the insurance companies whose annuities we offer.

A Wells Fargo Advisors annuity consultation helps you understand everything you need to know about annuities before you make any decision. Three main things happen in an annuity consultation.

1. Your Wells Fargo Advisors Financial Advisor will review your retirement goals and explain how an annuity may help you meet those goals.
2. You and your Financial Advisor will discuss various annuity options available, including different annuities, optional add-on features, and price information.
3. You’ll learn about the insurance companies backing the annuities, as well as how much monthly income you can expect from a certain investment.

After an initial consultation, you can expect several follow-up conversations with your Wells Fargo Advisors Financial Advisor so you have all the details of the annuities that may be a good fit for you, and you can weigh your options effectively.

To get started, call 1-866-246-5056 to speak with one of our experienced Wells Fargo Retirement Professionals or request a consultation online, which can help assess your situation and connect you with a Wells Fargo Advisors Financial Advisor.

Most deferred annuities allow you to make a full or partial withdrawal at any time, although there may be a fee if you withdraw over a specified limit. Withdrawals prior to age 59 1/2 may be subject to a 10% federal tax penalty, in addition to ordinary income taxes. Immediate annuities provide an income stream right away, but typically allow little or no access to the account value.

There are many types of annuities available and different features that you can select, each with different investment and pricing options. We are here to help you decide if an annuity is right for you, what features may be appropriate for your specific retirement needs, and how much it costs.

We use a rigorous review process to select insurance companies to offer you some of the top-tier annuity providers in the industry. Wells Fargo Advisors will work with you to select the right annuity to complement your overall investment portfolio.