How to Buy an Annuity: A Step-by-Step Guide

Key takeaways

• An annuity is one piece of a comprehensive retirement income plan.

• Compare annuity types, costs, access rules and the financial strength of the issuing insurance company before buying.

• Keep money available for emergencies and near-term needs before placing funds in a long-term annuity.

• Review surrender charges, withdrawal rules, tax considerations, beneficiary details and any free-look period before deciding to buy an annuity.

What is the best way to purchase an annuity?

For many people, annuities can help provide predictability around a part of your retirement income plan by providing a series of structured payments.

While determining the best way to purchase an annuity depends on your specific goals and circumstances, here is a practical process to follow before purchasing:

1. Decide what you want the annuity to do.

2. Compare annuity types and contract features.

3. Evaluate the issuing insurance company.

4. Determine how much money you can commit without reducing needed cash reserves.

5. Review costs, surrender charges and tax considerations.

6. Apply for and fund the annuity.

7. Review the contract during any available free-look period.

Step 1: Decide what role the annuity would play

For those approaching retirement, a deferred annuity can help create a future income stream once you stop working. For those already retired, an immediate annuity can provide predictable, scheduled payments starting sooner.

To decide the role an annuity could play in your retirement plan, start with questions like:

• Do I want income now or later?

• Am I looking for tax-deferred growth?

• How much flexibility do I need?

• How does this fit with Social Security, pensions, savings, investments or retirement accounts?

• What expenses do I want this money to help support?

As Nate DeBoer, vice president and actuary, Health + Annuity Solutions at Mutual of Omaha, explains, “Different types of annuities solve different needs.” That is why this first step matters. The right question is not simply, “Should I buy an annuity?” It is, “What would I want this annuity to help me do?” Answering that first can make the next steps easier to evaluate.

In Mutual of Omaha’s 2025 Decumulation Study, 74% of retirees and 78% of near-retirees said having a clear plan makes them feel comfortable spending in retirement.** That same planning mindset can help you decide how an annuity can play a clear role in your broader retirement income plan.

Step 2: Choose the type of annuity to compare

You do not need to become an annuity expert before starting the buying process, but understanding what to compare can be helpful.

Once you know the category, you can focus on the details that matter most for that type of annuity. For example, a fixed annuity conversation could focus on credited rates, renewal terms and surrender periods.

Step 3: Know where to buy annuities

You can typically buy annuities through various channels, but choosing what’s right for you depends on a few factors.  Here’s what to know and a few questions to ask when where to buy an annuity:

Annuities are designed to be long-term financial products, so before moving forward, it can be helpful to review the details with a licensed agent or producer who can explain the contract terms, costs, tax considerations and access-to-money rules.

Because the insurance company issues the annuity, the company matters. Review the issuer’s financial strength, how payments or withdrawals work and what happens if you want to make changes later.

Step 4: Decide how much money you may want add

Before buying an annuity, decide how much money you can set aside for a long-term financial product like that. Balancing the stability of predictable income with the flexibility of accessible cash is an important part of retirement planning. Among adults age 45 and older, 45% say they value flexibility and predictability equally, while 44% somewhat or strongly prefer predictability.* This balance can help guide how much to allocate to an annuity.

Keith Lo, annuity product director at Mutual of Omaha, explains that annuities are “meant for long-term planning. If someone has immediate liquidity needs, there just might be something simpler, like a bank account, to fill that need.”

That distinction can help you separate money you may need soon from money you want to allocate for longer-term retirement planning.

The right amount depends on your savings, income needs, age, health, family goals, tax situation and comfort with placing part of your money in a long-term financial product.

Ask about minimum annuity investment amounts

Minimum annuity investment amounts vary by insurance company and product. Some annuities may have lower payments into the annuity, while others may require a larger initial payments. The minimum may also differ depending on whether the annuity is fixed, indexed, immediate or deferred.

Before starting an application, ask:

• What is the minimum initial premium?

• Can I add money later?

• Is this a single-premium contract or can I make multiple payments?

• Are there maximum contribution limits set by the insurer?

• Does the minimum change if I add a rider or choose an income option?

 Annuities generally do not work like a standard savings account where you can deposit and withdraw freely. Some allow additional contributions; others are funded with one lump sum.

Step 5: Compare annuity costs and access rules

Annuity costs can vary by product type and terms. Some annuities may have no annual contract fee, while others may include administrative fees, rider fees, investment-related fees or surrender charges.

Before buying, ask for a clear explanation of what costs may apply and when they may be charged. It’s also helpful to understand whether a fee is tied to an optional feature, such as an added rider.

Understanding that difference and other common annuity terms can help you compare annuity options more clearly before purchasing.

Step 6: Apply for and fund the annuity

Once you decide which annuity to purchase, the next step is usually an application. The process may vary by product, but typically you’ll be asked for information such as:

• Your name, address and date of birth

• Tax identification information

• Beneficiary information

• Funding source

• Initial premium amount

• Payout or income start preferences, if applicable

• Optional rider selections, if available

• Signatures and required disclosures

In some cases, you can fund an annuity with money from savings, a brokerage account or certain retirement accounts, depending on the terms and your situation. If you are using money from a 401(k), IRA or another retirement account, review the tax impact before moving money.²

This is also a good time to confirm whether the annuity is qualified or non-qualified, how withdrawals may be taxed and whether required minimum distribution rules could apply to your situation. A tax professional can help you understand how those rules may apply.

Step 7: Review the contract before the free-look period ends

After the annuity is issued, review the contract carefully. This is where you confirm that the details you discussed are reflected in the paperwork.

This step matters because annuity familiarity is still relatively low. Only 25% of adults age 45 and older said they were very or extremely familiar with annuities.*

Lo also emphasizes understanding the contract: “it helps to become more educated, because once you become a policyholder, you will interact with the annuity.” In other words, the annuity contract is not just paperwork to file away. It explains how the annuity works, what choices you may have later and what rules apply if your needs change.

Review these items before the free-look period ends:

• Type of annuity

• Initial premium or contribution amount

• Interest-crediting method

• Income start date, if applicable

• Payout option, if applicable

• Surrender charge schedule

• Withdrawal rules

• Fees and optional rider costs

• Beneficiary provisions

• Tax reporting details

• Free-look or right-to-return period

• Claims-paying ability of the issuing insurance company

Many states provide a free-look period, which gives buyers a set number of days to review an annuity contract after purchase. The free-look period depends on state law and should be stated in the contract.³

What to ask before buying an annuity

Before buying, ask questions that help you understand the purpose, cost, flexibility and trade-offs of the contract.

• What type of annuity is this?

• What role would it play in my retirement income plan?

• Is this annuity designed for income now, income later or accumulation?

• What is the minimum annuity investment?

• What fees, rider costs or surrender charges might apply?

• How much money can I access each year without surrender charges?

• How are payments or withdrawals taxed?

• What is the financial strength of the issuing insurance company?

• How does an annuity fit with my other retirement income streams?

A helpful annuity conversation should leave you with a clear understanding of what you are buying, why you are buying it and what you should consider.

Frequently asked questions about buying an annuity

What is the best way to purchase an annuity?

The best way to purchase an annuity is to start with your retirement income goal, then compare annuity options with a licensed insurance professional. Review costs, surrender charges, income options, tax treatment and the financial strength of the issuing company before buying.

What age is the best time to buy an annuity?

There is no single best age to buy an annuity. The right timing depends on your income needs, retirement date, savings, tax situation, liquidity needs and goals for a spouse, partner or beneficiaries.

Should a 70-year-old buy an annuity?

A 70-year-old can consider an annuity if it fits their income needs, liquidity needs and broader retirement plan. Age alone should not drive the decision. Review how payments, taxes, access to money and beneficiary options work before buying.

Can I use retirement account money to buy an annuity?

Yes, for some people, retirement account money can be used to buy an annuity, depending on the account type, contract and tax rules. Before moving money from a 401(k), IRA or other retirement account, review the tax impact with a tax professional.

Sources:

*Mutual of Omaha Annuities Study. Mutual of Omaha worked with research vendor quantilope to conduct a 5-minute online survey of 400 consumers age 45 and older with a stated household income of $50,000 or more per year. Research was conducted April 22-28, 2026. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

**Mutual of Omaha’s 2025 Decumulation Study. Mutual of Omaha worked with quantilope to conduct an online survey of 496 consumers age 50 and older who were retired or near retirement. Research was conducted in 2025. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

1. Internal Revenue Service. (2025, August 26). Annuities — a brief description. U.S. Department of the Treasury. https://www.irs.gov/retirement-plans/annuities-a-brief-description

2. Internal Revenue Service. (2026, February 24). Topic no. 410, pensions and annuities. U.S. Department of the Treasury. https://www.irs.gov/taxtopics/tc410

3. National Association of Insurance Commissioners. (2025, June 18). Market Conduct Annual Statement Life & Annuities Data Call & Definitions: Version 2025.0.0. https://content.naic.org/sites/default/files/inline-files/MCAS%20Instructions%20Life%20%26%20Annuities%202025.0.0%20%281%29.pdf

Disclosures:

Annuity guarantees are backed by the claims-paying ability of the issuer.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.