It usually comes up pretty naturally. You're getting close to retirement or you just left a job, and your advisor mentions rolling your 401(k) into an annuity. The pitch sounds reassuring — guaranteed income, protection, something you can't outlive.
For some people, that's exactly what they need. Annuities solve real problems, and a solid income guarantee can bring real peace of mind. But it's also one of the decisions that's hard to unwind once it's done. After more than a decade working inside and around brokerages and advisory firms, this is the kind of recommendation I always slow down on. Not to kill the idea — just to make sure we both understand it.
Most financial moves you can reverse. Sell a fund, change your allocation, move on. Rolling into an annuity often locks you in for years, with surrender charges if you want your money back. That alone makes it worth pausing to ask a few direct questions.
1. What is the all-in annual cost — and how does it compare to leaving it where it is?
Annuities stack several layers: the insurance charge, any rider fees for the guarantees, and the cost of the investments inside. It can add up to more than a straightforward low-cost 401(k) or IRA. Ask for one clear number, in writing:
"What will this actually cost me every year, as a percentage and in real dollars? How does that compare to keeping my 401(k) where it is?"
Percentages feel small. Dollars feel real. Get both. If you want to see the long-term impact first, run it through The Examination.
2. How long am I locked in, and what does it cost to get out?
Know the exit before you enter. Ask:
"What's the surrender period? What would it cost me to take my money out in year one, year three, year five?"
If it's "you can leave anytime," great. If it's a multi-year penalty that steps down, that's fine — just know it upfront.
3. How are you paid on this — and what do you earn if I do nothing?
This one can feel awkward, but it's important. Many annuities pay a commission when you sign. Leaving the money where it is usually pays nothing. That doesn't automatically make the recommendation wrong. It just means you deserve the full picture.
A good advisor shouldn't have any trouble answering this. The answer doesn't make the recommendation good or bad by itself. It just helps you see the whole situation clearly.
4. What can this annuity do that my 401(k) or a low-cost IRA can't?
This is really the heart of it. Sometimes the answer is straightforward — a lifetime income guarantee you can't outlive. That has real value for the right person. Then the follow-up:
"What specific problem does this solve that a lower-cost option can't? And what am I paying for that extra piece?"
5. Will you put the recommendation — and the full costs — in writing?
If someone is recommending you move your retirement money, asking them to document why it's right for you (including the total costs and surrender terms) is completely reasonable. A good recommendation holds up on paper. If they hesitate, that's useful information.
I've met people who were thrilled they bought an annuity. I've also met people who didn't fully realize what they bought until years later.
That's exactly why I don't start with the product. I start with the questions. Good recommendations survive good questions. The answers matter more than the product itself. Annuities aren't the problem. Buying something you don't fully understand is the problem. Good decisions survive scrutiny.
Get a second opinion
The person answering these questions is often the same one who gets paid if you buy. That's why a neutral second opinion — from someone with no custody, no products to sell, and no stake in your decision — can be helpful.
Before you sign
Make sure you can check these boxes:
- I know the all-in annual cost in real dollars.
- I know the surrender period and what it costs to get out early.
- I know how the advisor is paid on the annuity versus doing nothing.
- I can clearly name what this does that a lower-cost option can't.
- I have the recommendation and full costs in writing.
Five straight answers. Eyes open. That's it.
Stuff people ask me about this
Should I roll my 401(k) into an annuity?
Sometimes it fits well. Sometimes it doesn't. It comes down to the all-in cost, how long you're locked in, and whether the guarantee solves a problem a simpler, cheaper option can't. Get those answers in writing before you sign — the move is often hard to reverse.
What are the downsides of annuities?
Higher all-in costs, multi-year surrender charges, and giving up low-cost institutional pricing. None of this makes annuities bad products. It just means you need to go in with eyes open.
How much does an annuity cost per year?
It varies by type. Variable annuities often layer an insurance charge, optional rider fees for the guarantees, and the cost of the investments inside. Always ask for one all-in number so you can compare it honestly.
Is my advisor required to act in my best interest on a 401(k) rollover?
Recommendations to move retirement money generally come with an obligation to put your interests first. Asking them to document the reasons and full costs is a fair and reasonable request.
Can I get a neutral second opinion before buying an annuity?
Yes. A firm that holds no custody of your money, sells no products, and earns nothing whether you buy or walk away can give you a clean read with zero skin in the game.
Before the surrender clock starts
Run the numbers through The Examination first — free fee calculator, no name, no email. Then, if you're still considering it, book a Confidential Fee Review with someone who has nothing to sell you.