Annuities are often touted as an investment, but they actually work more like an insurance policy. When you buy an annuity, you pay a company a set amount of money and are guaranteed to get a lump sum of cash every month for the rest of your life.

The complicated part is figuring out whether or not buying an annuity makes sense for you. There are a lot of extra costs with an annuity versus a traditional investment portfolio, but you may be eligible for tax benefits.

Top 10 Best Rated Annuity Companies

American Equity is an Investment Life Holding Company that is licensed to sell products in all 50 states and D.C. It specializes in the sale of fixed index and fixed-rate annuity products.
Fidelity has been in business for nearly 70 years providing investment management and administration expertise to more than 23 million customers. It also helps over 20,000 employers with their employee benefit programs.
Prudential is a top provider of financial services. It offers the highest daily lifetime income variable annuities, defined income variable annuities and premier investment variable annuities.
Farm Bureau Annuities started in Des Moines, IA, in 1939. The company provides liability insurance, auto insurance, home and property insurance and life insurance.
Pacific Life has been in business for over 145 years. It offers a number of options to help customers grow and protect their retirement savings and services to help them better understand retirement-oriented financial solutions.
AIG has been offering asset protection and helping to guarantee income for Americans for over 160 years. The company currently provides over 1.5 million individuals with products and services related to retirement preparation.
Mass Mutual Financial Group was founded in 1861. It provides fixed deferred annuities, Income annuities and variable annuities to help its customers plan for retirement.
Genworth started as a business in 1871 and has more than $100 billion in assets. It works with customers in over 25 countries and is ranked in both Standard & Poor's 500 Index of Leading U.S. Companies and the Fortune 500.
Allianz is a leading provider of retirement solutions, offering fixed and variable annuities as well as life insurance for individuals. The company has been in business for over 115 years and has high financial ratings.
NCSF was founded in 1891 and is a non-profit fraternal benefit society that provides life insurance and annuities to those of Catholic faith and their families. It specializes in fixed-rate and tax-deferred annuities.

The ConsumerAffairs Research Team believes everyone deserves to make smart decisions. We aim to provide readers with the most up-to-date information available about today's consumer products and services.

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What features matter most?

Expenses

Expenses

Annuities have a reputation for becoming accompanied by hefty fees. While certain costs are to be expected, consumers should clearly understand them before purchase.

  • Surrender fees: Be sure to understand the surrender fee that will be paid if the money is taken out of the annuity before the contract time period is up.
  • Commissions: Similar to investment products, annuities are bought and sold on the market, and an advisor or agent makes a commission from the sale. This charge is paid by the consumer.
  • Monthly fees: Annuity monies are invested, often in mutual funds. These funds usually incur fund management fees, and the costs are passed on to the consumer.

Funding options

The initial funds used to purchase an annuity can come from many sources. There are also ways to add to an annuity once it has been created.

  • Single payment: The simplest option for consumers who have a lump sum of money and want to put it into an annuity is to write a check or wire the money to the company.
  • Series of payments: Some annuities allow consumers to initially fund the account with a small amount of money and then add to the principle periodically. This is a form of saving while growing money for retirement.
  • Social Security: Consumers can choose to reduce their Social Security benefits in the near term and use the savings for an annuity for the long term. Consumers should carefully consult a financial advisor regarding this option.

Investment options

Investment options

Annuity funds are invested in various markets. Depending on the type of annuity, consumers can have more or less control over the underlying investment options.

  • Immediate annuities: An immediate annuity offers, as the name implies, immediate results. You make a lump sum payment and immediately (or almost immediately) begin to get a guaranteed monthly payment. Immediate annuities generally are paid out for the rest of your life, but they can also be paid out over another set period of time that you specify.
  • Fixed annuities: When you buy a fixed annuity, your rate is locked in for a guaranteed amount of time ranging from one to ten years. Your rate might still fluctuate, but it will never go below the amount you set with your fixed annuity. This type of annuity is good for people who want a low-risk insurance plan and aren’t concerned about growing their annuity.
  • Variable annuities: A variable annuity is spread out over several investment accounts, making it similar to a mutual fund. Generally, variable annuities are not advised since The return on the account is based on the performance of these funds and not on a fixed amount. However, it does make sense in certain situations, especially if you are open to risky investments for the potential of a high return and you already have a vibrant investment portfolio.
  • Equity indexed annuity: An equity-indexed annuity combines the best of fixed and variable annuities by offering a fixed rate and payments while tying your money to an index to allow for a higher growth potential than a regular fixed annuity.

Payout options

When purchasing an annuity, the consumer can choose how the future payments will be made.

  • Guaranteed period: This option provides a guaranteed number of payments. Upon death, the payments continue to a beneficiary for a set period of time.
  • Lifetime payments: The guaranteed payment in this case is for the lifetime of the annuity holder only. This option provides no survivor benefits. Lifetime payments may be appropriate for those with no beneficiaries.
  • Survivor payments: Popular with married couples, this type of payment will continue for the life of the holder and, upon death, will then continue for the life of the beneficiary as well.

Withdrawal options

Withdrawal options

There are several ways to withdraw money from an annuity. However, there are also many fees and penalties associated if the money is withdrawn before the age of 59 1/2. Consumers should be sure they clearly understand all the tax and other financial implications of withdrawals.

  • Annuitization: This options converts the current value of the annuity into a stream of payments. It provides a guarantee of steady income for the life of the annuitant or can provide steady income to beneficiaries after death of the annuitant, based on a chosen time period. Payments can be made using a fixed amount or a variable amount.
  • Systematic withdrawal: With this option, the consumer chooses how much and when payments will be made. This can include withdrawing only the earnings or withdrawing the principal and the earnings. However, there is no guarantee of payments for life when making withdrawals.
  • Lump sum: It's possible to take the entire lump sum of an annuity's value; however, the investment gain will be taxed as ordinary income. If withdrawal is made before age 59 1/2, penalties will also be due.

Company stability

The FDIC does not back annuities, so if the insurance company goes out of business, there won't be any payouts. There are some state guarantees, but consumers should be sure they work with a strong and reputable financial company to protect their investments.

  • Credit quality: Most companies with high ratings from the major financial rating services will readily present this information. If it's not obvious, consumers should research the company using the major rating agencies.
  • Financial strength: In addition to ratings, the number of assets under management and the cash reserves available can make a statement about the strength of a company and its annuity payment ability.
  • Company history: A company's history is a good place to start when researching its stability. Consumers should find out details such as how long the company has been in business and how may annuities it has underwritten.

What are different types of annuities?

Fixed annuity

A fixed annuity sets a guaranteed payout for the rest of the beneficiary's life. Fixed annuities can provide predictability and a steady income during retirement.

Variable annuity

A variable annuity's payout stream is determined by the performance of an underlying investment. Variable annuities provide growth potential.

Indexed annuity

A combination of a fixed and a variable annuity is known as an indexed annuity. The annuitant receives a guaranteed minimum payout while the rest of the payment varies along with the underlying investment's performance.

Immediate annuity

Immediate annuities begin to pay a short period after the investment is made. These can be fixed or variable.

Deferred annuity

Any money earned by investing in a deferred annuity will be accumulated until payout is set to begin. Deferred annuities can be fixed or variable and can be converted to immediate annuities once payout is desired.

Who's it for?

Savers

Annuities are an option for consumers who want to let their money grow and at the same time avert taxes on the income. These consumers are usually confident that they will not need to access their money for a long period of time and reasonably expect to outlive their savings.

Savers plus income generators

This group of consumers want both the ability to grow income and still have access to assets. They often include consumers nearing retirement age.

Retirees

For those who are now living from their savings, an annuity can create a predictable and guaranteed stream of income for life. Consumers often use this income to cover essential retirement living expenses.

Social Security recipients

Consumers who have Social Security or pension plan income may want to use an annuity to supplement these sources.

Company reviews

  • American Equity

    American Equity is an annuity provider that sells multiple types of annuities in all 50 states and the District of Columbia. They are a publically-traded company that is American-owned and operated.

    • Product options: American Equity offers a variety of products so that it can meet the all customers’ needs. Their products include traditional fixed annuities, fixed index annuities, flexible premium annuities, single premium annuities and immediate annuities.
    • Financial strength: Both A.M. Best Company and Standards and Poor have given American Equity an A- rating. The company manages more than $40 billion in assets.
    • Educational resources: Interested consumers can visit the American Equity website to access several resources. The website offers calculators to help consumers understand the benefits of different types of annuities and a list of helpful links so that consumers can learn more before investing with any company.
    • Responsive service: American Equity customers can expect a prompt response to their phone calls and contracts are usually issued less than three days.
    • Consumer guidance: American Equity can offer assistance at any stage of consumers’ annuity purchase, from understanding what an annuity is to receiving the payouts from their annuity.
    • Best for Savers, savers plus income generators and retirees.
  • AIG Annuities

    AIG is one of the largest insurers in the world and has more than 88 million customers in 130 countries worldwide. Founded in 1919, AIG now has more than 63,000 employees.

    • Best for Savers plus income generators, retirees and Social Security recipients.
  • Genworth Annuities

    Genworth is a Fortune 500 company with a presence in over 25 countries. The company has evolved from a small insurance company in Virginia to a company with over $100 billion in assets.

    • Best for Savers, savers plus income generators, and retirees.
  • Farm Bureau Annuities

    Farm Bureau was founded in 1939 in Des Moines, Iowa. Today the company has 1,400 employees, as well as 4,000 field associates.

    • Best for Savers, savers plus income generators, and retirees.
  • Allianz Life Annuities

    Allianz Life Annuities was founded in 1896 and is backed by the large global corporation, Allianz SE. Allianz was listed as the 31st largest company on the Fortune Global 500 list.

    • Best for Savers, savers plus income generators and Social Security recipients.
  • Fidelity Annuities

    Fidelity is a privately held company with over $4 trillion in customer assets. Fidelity was founded in 1946 and has been an innovator in the consumer financial industry throughout its entire history.

    • Best for Savers, savers plus income generators, and retirees.
  • MassMutual Annuities

    MassMutual has been in business for over 160 years and is a mutual company. Members and policy owners have voting rights, and participating policy owners may share in dividends.

    • Best for Savers, savers plus income generators, retirees and Social Security recipients.
  • Prudential Annuities

    Prudential, also known as "The Rock," has been in business for nearly 140 years. Today, Prudential is one of the most recognized and one of the world's largest financial services institutions. Prudential was also one of the few companies that declined to participate in the TARP program in 2009.

    • Best for Savers, savers plus income generators, and retirees.
  • Pacific Life Annuities

    Pacific Life is a Fortune 500 company and the 10th largest seller of variable annuities. The company's 145-year history began in California in 1868. The first policy was issued to the founder of Stanford University.

    • Best for Savers, savers plus income generators, retirees and Social Security recipients.