How to Buy an Annuity
schedule 3 minutes

Annuities are designed to provide protected income for as long as you live. Here’s how to determine if they're right for you.

schedule 3 minutes

In an uncertain world, annuities can help provide steady, reliable monthly income for life.

An annuity is a contract between you and an insurance company. You'll make purchase payments and your money can grow until you decide to receive the funds in regular payments. Annuities may also offer death benefits for your beneficiaries, so they can help with estate planning as well.

Annuities are not a one-size-fits-all solution, however. Here’s what to consider before you purchase an annuity so you can be sure to choose the right option for your unique needs.


Tax-deferred growth. The money you set aside for an annuity can grow untouched by the IRS until withdrawal, giving you a larger sum to work with.

Flexible withdrawal arrangements. You can choose to withdraw from your annuity according to your individual needs. Since annuities are intended for retirement, taxes and penalties may apply.

Principal Protection of Fixed Annuities. Never lose principal due to market performance as fixed annuities are not invested in the market. Even during market downturns, your money will not be affected and you will not lose money.

Diverse Investment Options. For variable annuities, build an investment portfolio that’s diversified the way you choose and participate in the ups and downs of the market.


Immediate annuities. Used by those who want reliable income immediately (or within one year of purchase). With it, you can tailor income to fit your needs and create income that lasts for life.

Deferred annuities: For those who want to grow their money over time, but are willing to defer access to the money until retirement years.


Fixed annuities: Provides principal protection and the opportunity for growth through interest.

Variable annuities: Provides greater potential for growth by investing your money in investment options you choose and the ability to rebalance your portfolio based on your preferences and in a way that aligns with changing financial goals.

With fixed annuities, the company invests the funds and provides an interest rate to the client. With variable annuities, clients take on the market risk for potential losses as they seek potential gains. 


Ultimately, annuities are designed to help grow, protect, and manage retirement savings turning it into steady, reliable lifetime income when you need it in retirement. To help understand how an annuity could fit into your overall plan, start with the Retirement Income Translator tool, which can help you envision current retirement savings as future retirement income. Then you can share the results and discuss annuity options with a financial professional. You can find one here.


  • When do you need the income―now or later?
  • Why are you purchasing the annuity―for principal protection with growth potential?
  • While you’re focused on using your savings to enjoy your retirement, are you interested in also leaving a financial legacy—to pass more money on to heirs?
  • Are you looking for a vehicle to provide tax-deferred growth―to work as part of your retirement plan?

Discuss the answers to these questions with your financial professional, who can help you determine what type of annuity is best for you.

Retirement Income Translator

You’ve been diligent about saving for retirement. But do you know what those savings translate to in retirement income? Use our Retirement Income Translator tool to find out what your retirement income could be. The tool will ask five simple questions to provide you with a personalized two-minute video to guide you through the results. You’ll be able to download a results report to keep and/or share with your financial professional.


"Understanding Annuities", VLC0441-0917, Pacific Life

Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company and do not protect the value of the variable investment options, which are subject to market risk.

Annuity withdrawals and other distributions of taxable amounts, including death benefit payouts, will be subject to ordinary income tax. For nonqualified contracts, an additional 3.8% federal tax may apply on net investment income. If withdrawals and other distributions are taken prior to age 59½, an additional 10% federal tax may apply. A withdrawal charge and a market value adjustment (MVA) also may apply. Withdrawals will reduce the contract value and the value of the death benefits, and also may reduce the value of any optional benefits.

The value of the variable investment options will fluctuate so that shares, when redeemed, may be worth more or less than the original cost.

Under current law, a nonqualified annuity that is owned by an individual is generally entitled to tax deferral. IRAs and qualified plans—such as 401(k)s and 403(b)s—are already tax deferred. Therefore, a deferred annuity should be used only to fund an IRA or qualified plan to benefit from the annuity’s features other than tax deferral. These features include lifetime income, death benefit options, and the ability to transfer among investment options without sales or withdrawal charges.

The above is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current laws, which are subject to change at any time. You should consult with their accounting or tax professionals for guidance regarding your specific financial situation.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues.

Pacific Life’s Home Office is located in Newport Beach, CA.


This website or its third-party tools use cookies, which are necessary to its functioning and are required to achieve the purposes illustrated in our online privacy policy.