Skip to content
Moving Mountains mountain mark
Get My Free Quote
Coverage

Annuities

An annuity is a contract with an insurance company. In exchange for a lump sum or series of premiums, the carrier provides tax-deferred growth and, optionally, a stream of income that can last for a defined period or for life.

Annuities come in several structures. Fixed annuities credit a set interest rate for a defined period, similar in spirit to a CD but tax-deferred. Fixed-indexed annuities credit interest based on the performance of a market index, subject to a cap rate, participation rate, and spread. Variable annuities invest the cash value directly in sub-accounts and expose you to market risk; we are more selective about recommending these.

Like IUL, fixed-indexed annuities use cap rates and participation rates to define how much of an index gain gets credited to your contract. A 7 percent cap means a 20 percent index year credits 7 percent. A 50 percent participation rate on a 10 percent index year credits 5 percent. These rates can be reset by the carrier each year within contractual minimums.

Annuities carry fees and surrender charges. Fees can include rider fees (for example, for an income or death-benefit rider) and administrative fees. Surrender charges apply if you withdraw more than the contract allows during the surrender period — typically 5 to 10 years. The schedule declines each year. We walk through the specific surrender schedule and total fee stack on any illustration we present.

Annuity income is where the "risk transfer" shows up. Many annuities offer a guaranteed lifetime withdrawal rider so your income continues no matter how long you live, even if the contract value is drawn down. The guarantee is backed by the carrier, not an outside entity, which is why carrier strength matters.

Who it typically fits

  • Clients within 5 to 15 years of retirement looking to add a guaranteed-income component.
  • People with maxed-out qualified retirement accounts who want more tax-deferred growth.
  • Retirees worried about outliving their money who want a reliable baseline of income.
  • Clients who want principal protection and are comfortable giving up some upside for that protection.

Frequently asked questions

What is a cap rate on an annuity?+
The maximum percentage of index gain that will be credited in a given crediting period. A 7 percent cap on a 20 percent index year still credits 7 percent.
What is a participation rate on an annuity?+
The percentage of the index gain that is credited to your contract. A 50 percent participation rate on a 10 percent index year credits 5 percent.
What are surrender charges?+
If you withdraw more than the contract allows (typically a 10 percent free withdrawal each year) during the surrender period, the carrier applies a surrender charge. The surrender period is often 5 to 10 years and the charge declines each year to zero.
What fees should I ask about?+
Rider fees (for income, death-benefit, or long-term-care riders), administrative fees, and — in variable annuities — mortality-and-expense fees and sub-account expenses. We review the total fee stack before recommending.
Is my principal guaranteed?+
In fixed and fixed-indexed annuities, your principal is protected against market loss (subject to the terms of the contract and the strength of the issuing carrier). In variable annuities, your principal is not guaranteed unless you add a specific rider.
Can I lose money in a fixed-indexed annuity?+
Not from a market drop — the crediting formula has a floor (usually zero). You could still see a lower contract value if you take a withdrawal during the surrender period and incur a surrender charge.

Moving Mountains Advisors does not guarantee approval, rates, or outcomes. Insurance product features vary by carrier, state, age, and health. All examples above are educational and not an offer of coverage.