When it comes to annuities, there’s no shortage of confusion — and it’s usually driven by misinformation, outdated assumptions, or one bad experience someone had years ago. After meeting with hundreds of people this year, I noticed the same seven questions coming up over and over again.

If you’ve ever wondered how annuity fees work, what makes a “Roth-friendly” carrier, or how long an annuity actually takes to start, this lesson will give you clarity. As we wrap up 2025, I’m answering the questions real retirees are asking so you can protect your wealth and retire financially relaxed.

1. How Do Annuity Fees Actually Work?

Most fixed index annuities (FIAs) have zero annual fees unless you add an income rider. That’s one reason retirees use FIAs — clean structure and built-in protection.

If you do add an income rider for guaranteed lifetime income, expect a fee of roughly 0.9%–1.25% a year, deducted from the account value. In exchange, you get a paycheck for life, even if your contract value hits zero.

MYGAs (multi-year guaranteed annuities) also have zero fees and offer predictable tax-deferred growth — often at higher rates than CDs.

Variable annuities, on the other hand, carry significantly higher fees. I don’t use them in my practice, but if you have one, make sure you understand exactly what you're paying for.

2. What Makes a Carrier “Roth-Friendly” for Partial Conversions?

This was one of the hottest topics of 2025 thanks to RMDs, IRMAA surcharges, and the 2025–2028 Roth conversion window.

A Roth-friendly carrier allows you to:

• Do unlimited partial conversions
  Not all carriers allow this — but it’s essential for managing your tax brackets year by year.

• Customize tax withholding
  You can choose whether the carrier withholds taxes, or you can pay them yourself to keep more money converting into the Roth.

• Use flexible transfer timing
  Want to convert 33% this year, skip next year, and resume later? You can.

• Leverage FIA bonuses to offset taxes
  Growth inside the FIA can help cover taxes so you don’t have to come out of pocket.

This flexibility is key for building a multi-year, tax-optimized conversion plan.

3. Do I Have to Move My Entire IRA Into an Annuity?

Absolutely not.

You can do partial transfers, convert in slices, or ladder annuities across multiple carriers. Some retirees use two FIAs. Others combine MIGAs with income annuities. Some ladder Roth conversions over several years.

The goal is always a balanced plan — safe growth, income, liquidity, and tax efficiency. It never has to be all or nothing.

4. How Long Does an Annuity Contract Take to Start?

This depends entirely on the type of funds you’re using:

• Cash, checking, savings, money market:
  3–7 days from application to funding.

• IRA, 401(k), TSP rollovers:
  Typically 2–4 weeks due to custodian-to-custodian transfers.

• Complex cases:
  Multiple transfers can take 4–6 weeks.

Most carriers offer a 30–60 day rate lock, so your terms are protected while the funding moves.

5. How Do Cap Rates & Participation Rates Work?

FIAs use caps and participation rates to determine how much interest you receive based on an index like the S&P 500.

• Cap rates limit the maximum credited interest
  Example: a 10% cap means you earn up to 10% even if the index earns more.

• Participation rates give you a percentage of the index return
  Example: a 100% participation rate means you get the full index return (up to the structure limits).

Both protect you on the downside with a 0% floor, which is a core reason retirees choose FIAs.

If you select an annuity with a big upfront bonus, remember: cap and par rates will usually be lower because the carrier must balance the guarantees.

6. How Does the Long-Term Care Rider Work?

Most FIAs include a built-in LTC benefit at no added cost:

• Penalty-free access if you can’t perform 2 of 6 ADLs or have cognitive impairment

• No medical underwriting

With an income rider, you get an additional benefit:

• Income doubler for qualifying LTC events — often for up to five years
  Example: $25,000/year becomes $50,000/year during the LTC period.

This creates a powerful hybrid solution without needing a standalone LTC policy.

7. How Does the Annuity Death Benefit Work?

It depends on the type of annuity:

• MYGA:
  Whatever the account value is at death goes directly to your beneficiaries.

• Standard FIA:
  Full account value passes to beneficiaries outside of probate.

• FIA with income rider:
  Enhanced death benefits may apply depending on how long you’ve taken income and your remaining account value.

In all cases, you can update your beneficiaries at any time, making annuities a simple, predictable way to pass on wealth.

The Biggest Mistake I See

People dismiss annuities based on someone else’s bad experience or an advisor who didn’t explain the product clearly.

Before assuming annuities aren’t right for you, ask:

• Have you actually seen an illustration?

• Do you know the difference between an FIA, a MYGA, an income rider, and a variable annuity?

• Are you working with someone who will support you year after year?

I meet with my clients annually and design strategies that last decades. That matters — especially when you’re protecting your life savings.

If you want a custom retirement income strategy, help with Roth conversions, or want to understand which annuity fits your plan, I’m here to help.

Ready to Retire Financially Relaxed?

My goal is to help you eliminate the fear of running out of money, avoid costly mistakes, and retire with confidence and security. When you have safe, predictable income in place, you’re free to actually enjoy retirement — not just worry your way through it.

👉 Learn more at the Retirement Income School™.
📞 Want to talk? Schedule a Retirement Income Q&A Call — I’d love to support you!

DISCLAIMER:
The information in this podcast is provided for general educational purposes only and does not constitute financial, legal, or tax advice. Retirement Income School™ and Dr. Amanda Barrientez do not provide individual investment recommendations. Always consult with a licensed advisor or tax professional before implementing any strategy discussed.