Annuities

Annuities convert a lump sum into protected income. CentraLife specializes in fixed indexed annuities with income riders that grow during deferral and pay a guaranteed lifetime check once turned on — the modern replacement for the disappearing pension.

What it includes

Fixed, indexed, and immediate annuity options
Guaranteed lifetime income riders
Tax-deferred accumulation in non-qualified money
1035 exchanges from underperforming policies

Who it’s for

Pre-retirees and retirees who need income they cannot outlive.

Before you buy an annuity: losses, costs, guarantees and the tax rules

Updated October 17, 2026

A fixed indexed annuity is an insurance contract whose interest is linked to a market index, and the interest credited is guaranteed never to be less than zero, even when the index falls. That floor protects against index losses, not every loss: surrender charges, market value adjustments, early withdrawals and tax penalties can still leave you with less than you paid in, and every guarantee depends on the insurer’s ability to pay.

How a fixed indexed annuity can still lose value

Surrender charges. Taking money out during the surrender period, which the SEC says typically lasts six to ten years or longer, triggers a charge on the amount withdrawn. The percentage usually goes down each year until the period ends.
Market value adjustments. Some contracts adjust what you can withdraw for changes in interest rates. If rates are higher than when you bought the annuity, the adjustment could reduce the amount you can take.
Withdrawals before a crediting period ends. If you take money out mid-period, not all of that period’s index-linked interest may be applied.
Tax on early withdrawals. Taking earnings out before age 59½ generally adds a 10% additional federal tax on the taxable part (IRC §72(q)).
A minimum guarantee that starts below your premium. FINRA notes the guaranteed minimum interest rate usually ranges from 1 to 3 percent on at least 87.5 percent of the premium paid, so in the early years the guaranteed value can be less than what you put in.

Fees, surrender charges and crediting limits

Annuity charges and crediting limits: what each does and what to check
Feature	What it does	Check in the contract
Surrender charge	A percentage charged on money taken out during the surrender period. It usually declines each year until the period ends.	The charge for each contract year, and any waivers (for example, at death).
Free withdrawal amount	Many contracts let you take a small amount each year without the surrender charge; the NAIC guide says usually up to 10%.	The percentage and what it is measured against.
Market value adjustment	Can raise or lower your account value, cash surrender value or death benefit when you withdraw, depending on interest rates.	Whether the contract has one, and when it stops applying.
Rider charges	Optional benefits, such as a guaranteed lifetime withdrawal benefit or an enhanced death benefit, usually cost extra.	The annual charge and what it is calculated on.
Cap	The maximum rate of positive return the contract can credit for a period, however much the index rises.	The current cap, and the minimum cap if the contract guarantees one.
Participation rate	The share of the index gain that is credited.	The current rate and the guaranteed minimum.
Spread, margin or asset fee	A set percentage subtracted from the index gain before interest is credited. It reduces your return the way a direct fee would.	Whether it is used alone or combined with a cap or participation rate.
Dividends	Index gains are usually calculated without the dividends paid on the stocks in the index.	Which index and which crediting method the contract uses.
Insurer changes	Contracts commonly let the insurer change features such as the cap from time to time.	How often rates can change and the floors the contract guarantees.

Are fixed indexed annuities safe and guaranteed?

The insurer stands behind every guarantee. The SEC notes that all amounts payable are subject to the insurance company’s ability to pay, and the NAIC guide says all product guarantees depend on the insurer’s financial strength and claims-paying ability. Check its financial-strength ratings before you buy.
Fixed and fixed indexed annuities are insurance products regulated by state insurance departments. The SEC regulates only indexed annuities that are securities.
Annuities are not FDIC insured. The FDIC lists annuities among the financial products it does not insure.
State guaranty associations are a backstop with limits. If an insurer fails and is ordered into liquidation, the guaranty association in your state of residence generally provides coverage up to the limit set by state law. For annuities the limit applies to the present value of annuity benefits; NOLHGA’s state tables (as of June 1, 2025) show $250,000 in many states and higher limits in some.

How to check an insurer’s strength: comparing life insurance carriers. Michigan’s own limits are on the Michigan page.

Annuity vs 401(k), IRA, CD or life insurance

Annuity compared with a 401(k), IRA, CD and life insurance: the job each does, what protects it, and access and tax
Option	Main job	What protects it	Access and tax
Annuity	Income you cannot outlive, or tax-deferred growth for money you will not need for years.	The insurer’s ability to pay, with a state guaranty association backstop up to state limits. Not FDIC insured.	Surrender charges during the surrender period. A non-qualified annuity’s earnings are taxed as ordinary income when withdrawn; inside an IRA or employer plan, that account’s tax rules apply. Taxable amounts taken before 59½ generally carry a 10% additional tax.
401(k), 403(b) or 457(b)	Retirement saving through an employer plan, with yearly contribution limits.	Depends on the investments chosen in the plan.	Plan rules and IRS rules apply. Required minimum distributions apply to traditional balances, though someone still working for the plan sponsor can generally wait until retiring unless they are a 5-percent owner.
IRA	Retirement saving you control, with yearly contribution limits.	Depends on what the IRA holds.	Traditional IRAs have required minimum distributions; a Roth IRA has none while the owner is alive.
Certificate of deposit (CD)	Holding cash for a set term at a stated rate.	FDIC insurance covers $250,000 per depositor, per FDIC-insured bank, for each account ownership category.	The bank sets the term and any early-withdrawal penalty.
Life insurance	Paying a death benefit to the people who depend on you; permanent policies can also build cash value.	The insurer’s ability to pay, with a state guaranty association backstop up to state limits.	Death benefits are generally income-tax-free to beneficiaries (IRC §101(a)); cash-value access depends on the policy.

They are not substitutes for one another: each answers a different question. An annuity is the one built to turn savings into income for life; it is rarely the place for money you may need soon.

Do annuities have required minimum distributions?

Inside a traditional IRA or employer plan (a qualified annuity), the account’s required minimum distribution rules apply. Under Treasury’s 2024 final regulations they begin at age 73 for people born 1951 through 1958 and at age 75 for people born in 1960 or later. The statute names both ages for people born in 1959; proposed regulations would set it at 73.
In an employer plan, someone still working for the plan sponsor can generally wait until the year they retire, unless they are a 5-percent owner of the business. That exception does not apply to IRAs (IRC §401(a)(9)(C)).
Inside a Roth IRA, there are no required minimum distributions while the owner is alive.
A non-qualified annuity (bought with after-tax money) is not subject to these lifetime RMD rules; its required distributions begin at the owner’s death (IRC §72(s)).

What happens to an annuity when the owner dies

Before the contract is annuitized, a deferred annuity’s basic death benefit is usually the greater of the account value or the minimum guaranteed surrender value; enhanced death benefits may be available for an extra cost. Payments under a guaranteed lifetime withdrawal benefit rider are withdrawals, not annuitization: the NAIC guide notes that survivors may get some or all of the money left in the annuity.
After the contract is annuitized, survivors may receive nothing unless the annuity guarantees to pay out at least what was paid in, or the payout option chosen continues payments after death.
For a non-qualified annuity, a surviving spouse named as beneficiary is treated as the owner and can generally continue the contract. If the owner dies before the annuity starting date, other beneficiaries must receive the whole value within five years of the death, or as payments over their life that begin within one year. If the owner dies on or after the annuity starting date, the rest must be paid at least as quickly as under the method already in use (IRC §72(s)).
For an annuity inside an IRA or employer plan, the inherited-account rules apply. For owners who die after 2019, the SECURE Act generally requires the balance to be paid out within ten years. Exceptions include a surviving spouse and the owner’s own child while under the age of majority; once that child reaches majority, the ten-year period begins (IRC §401(a)(9)(E)).
Tax depends on the money inside. For a non-qualified annuity, beneficiaries typically owe income tax on the gain, and annuities do not receive the step-up in basis that inherited stocks or real estate can (IRC §1014(b)(9)). Inherited pre-tax IRA or plan money is generally taxable in full when paid out (IRC §408(d)(1)), while qualified Roth IRA distributions can be tax-free (IRC §408A(d)).

Educational summary, not tax or legal advice. The contract, its disclosure and current law control; confirm tax treatment with your tax professional.

Sources for this section

Sources accessed October 17, 2026.

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Questions people actually ask

What is an annuity?

A contract with a life insurance carrier that converts money — a lump sum or a series of premiums — into guaranteed income, often for as long as you live. It is the only financial product that can contractually guarantee lifetime income, which is why annuities exist: not to beat the market, but to make sure you cannot outlive your paycheck.

How do annuities work?

Two phases. Accumulation: your money grows tax-deferred inside the contract — at a fixed rate, an index-linked crediting rate, or market subaccounts, depending on type. Payout: the carrier converts the balance into income. An immediate annuity skips accumulation and starts paying within a year of purchase; a deferred annuity grows first and pays later. That timing difference is the main distinction between the two.

How are annuities taxed?

Growth is tax-deferred under IRC §72 — no annual tax bill while gains compound. Withdrawals of gains are taxed as ordinary income, not capital gains. From a qualified annuity (IRA/401(k) money) every dollar out is taxable and RMD rules apply. From a non-qualified annuity (after-tax money) only the gains are taxed — gains come out first under LIFO on withdrawals, while annuitized payments split each check between taxable gain and tax-free return of principal via the exclusion ratio. Withdrawing gains before 59½ generally adds a 10% IRS penalty.

Run the tax math on an annuity you own →

What is the difference between qualified and non-qualified annuities?

The money that funded them. Qualified annuities hold pre-tax retirement money — they follow IRA rules: fully taxable withdrawals and required minimum distributions. Non-qualified annuities hold after-tax dollars — no RMDs during your lifetime, no IRS contribution limit, and only the growth is ever taxed. That combination is why non-qualified annuities appeal to savers who have maxed every other tax-advantaged bucket.

What is a fixed indexed annuity (FIA)?

An annuity whose interest is tied to a market index like the S&P 500. The interest credited is guaranteed never to be less than zero, even when the index falls. That floor covers index losses only: surrender charges, market value adjustments, early withdrawals and tax penalties can still leave you with less than you paid in, and a cap or participation rate limits gains. Your premium is not invested in the market; it sits in the carrier’s general account, which funds the guarantees. Add a lifetime income rider and an FIA becomes a private pension: protected accumulation now, guaranteed income later. This is the annuity type we design with most.

Why do some advisors call annuities a bad investment?

Because annuities sold as growth investments usually are bad ones. The real criticisms — long surrender schedules, rider fees that stack, complexity used to hide commissions, variable products that layer market risk on top of costs — describe mis-sold contracts. An annuity is not a growth vehicle; it is an income guarantee. Judged as insurance against outliving your money, the right contract does a job nothing else can. Judged as a stock-market substitute, it will always lose. If you already own one you are unsure about, the review is free — and sometimes the answer is keep it.

Keep it, fix it, or convert it — the free annuity review →

How much does a $100,000 annuity pay per month?

Depends on age, gender, payout type, and the rate environment when you buy. At recent rates, a 65-year-old converting $100,000 to lifetime income typically lands in the mid-$500s to mid-$600s per month for life — more if payments start later or cover a shorter guarantee, less with joint-life or inflation features. Treat any specific figure as directional: real numbers come from a current carrier illustration on your actual age and options.

Get current payout numbers on your situation →

Do annuities have death benefits and beneficiaries — can they be inherited?

Yes. You name beneficiaries directly, and the contract passes to them outside probate. Before the contract is annuitized, a deferred annuity’s basic death benefit is usually the greater of the account value or the minimum guaranteed surrender value; enhanced death benefits cost extra. Federal tax law also sets how quickly beneficiaries must take the money. The tax note heirs should know: for a non-qualified annuity, inherited gains are taxed to the beneficiary as ordinary income — annuities do not receive the step-up in basis that stocks and real estate get. A surviving spouse can usually continue the contract instead.

Can you cash out an annuity — and what does it cost?

Yes, but sequence matters. Many contracts let you take a small amount each year without a charge (the NAIC buyer’s guide says usually up to 10%); beyond that, surrender charges apply on a schedule that usually declines each year, a market value adjustment may raise or lower the amount, and you owe ordinary income tax on gains and a 10% IRS penalty on gains before 59½. If the real problem is a bad contract rather than a need for cash, a 1035 exchange moves the value to a better annuity tax-free — and sometimes the surrender math says stay put. Run the numbers before you sign anything.

Run the surrender math first →

How and where do you buy an annuity?

Through licensed professionals — and the type dictates the license. Fixed and fixed indexed annuities are insurance products sold by state-licensed insurance agents. Variable annuities are securities, regulated by the SEC and FINRA, and require a securities-licensed rep. Banks and brokerages typically shelve one carrier’s menu; an independent agency shops multiple A-rated carriers against your goals. Cost-wise there is no fee to buy — your premium funds the contract; the design determines what you keep.

Compare A-rated carrier options — free assessment →

Who should buy an annuity — and who should not?

Fit: people near or in retirement who want a guaranteed income floor under their essential expenses, savers who have maxed other tax-advantaged buckets, and anyone whose plan fails if the market drops in the wrong decade. Poor fit: money you may need liquid soon, young accumulators with decades of horizon, and anyone being pitched an annuity as a market-beating growth play. The product is a paycheck guarantee — buy it for that job or not at all.

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