5 questions to ask before you buy a pension annuity

A pension annuity is a permanent decision, so it's worth walking in with the right questions. Here are the five that matter most — ask them of any licensed professional before you commit.

1. How much of my savings should I convert?

Rarely all of it. The right amount usually covers your essential monthly bills (minus Social Security), leaving the rest liquid and invested. Guaranteeing the floor, not the whole portfolio, is the goal.

2. Single life or joint life?

If you have a spouse who'd depend on the income, a joint-life option keeps the check coming as long as either of you lives. It pays a bit less monthly, but it protects the survivor — usually worth it for couples.

3. What payout option protects my heirs?

Ask specifically about the cash-refund guarantee — it ensures your beneficiary gets back any premium you hadn't yet received if you pass early. It answers the "what if I die in year two?" fear directly.

4. How strong is the carrier?

Your income is only as reliable as the insurer behind it. Look for an A rating or higher from A.M. Best, and understand your state's guaranty-association protection. For larger amounts, spreading across two strong carriers is common.

5. How will the income be taxed?

With after-tax money, only the interest portion of each check is taxable (the exclusion ratio) — a nice efficiency. With IRA money, it's fully taxable. Confirm the treatment for your situation with a tax advisor.

Answer these five and you'll make the decision with clarity instead of pressure. A good starting point is simply seeing your guaranteed number — then the questions above turn an abstract product into a concrete choice.