What is a Two-Tiered Annuity?

Shawn Plummer

CEO, The Annuity Expert

What is a Two-Tiered Annuity And how does it work?

Two-Tiered contracts were a hybrid annuity product type that combined a deferred annuity with an income annuity. A Two-Tier Annuity was a deferred annuity product that required owners to annuitize their retirement plan rather than walking away with your accumulation value in a single lump sum. These old-school retirement annuities are rare in today’s annuity industry, but maybe you’ve purchased a two-tier annuity in the past.

Typically an annuity owner can surrender a two-tiered annuity, but there’s a huge surrender charge that you’ll incur. In addition, you might lose money in the process. You could sell the annuity on the Secondary Market as well.

Two-Tiered Annuity Contracts

Two-Tiered Annuity Structure

Two-Tiered Annuities require an annuity owner to defer their contract for a minimum specified period of time and then convert your annuity contract’s value into an irrevocable stream of annuity payments.

Example:  Let’s say your two-tier annuity contract is a 5×10 annuity.  This means the two-tier contract requires the annuity to be deferred (grow) at a minimum of 5 years. If the client wants access to the annuity after 5 years, they must convert the deferred annuity into an income annuity at a minimum income distribution period of at least 10 years.

Let me say the minimum requirements another way.  

If you buy a 5×10 two-tiered annuity, the minimum period of time you’ll be in the contract is at least 15 years (5 years of growing the contract then taking an annuity payout of 10 years).


The two-tiered annuity contracts generally have higher annuity payout amounts for retirement income planning than an immediate annuity or deferred annuity.

You probably were offered a nice premium bonus to entice you.

Typically, these retirement annuities offered better growth or a higher guaranteed interest rate simply because you would be stuck in the contract for a long time.

At least you get a higher rate of return with your “cemented” annuity.

You don’t necessarily have to convert your future retirement dollars into a guaranteed lifetime income, but rather a fixed period of time instead.


Normally you don’t know your retirement income payment amounts because these retirement annuities were mostly performance-based (indexed products) that earned gains versus the guaranteed income riders of modern annuities.

Contracts have limited liquidity (penalty-free withdrawals) during the accumulation phase if any at all. Therefore, there would be no liquidity in the income phase.

Annuity owners were forced to convert their accumulated value into periodic payments for a fixed period of time.

If you could surrender your contract, the surrender charges would be extremely high, and you’d lose a significant amount in your accumulation value.

Finally, if you chose a life contingent payout (single life or joint and survivor), there could have been zero death benefit for beneficiaries.


Two Tier contracts are a dated retirement annuity built for future retirement income and gave the annuity industry a bad name for a period of time.

The good news is there aren’t many (if any) of these types of annuities available to purchase today. 

However, there is a Deferred Income Annuity (DIA) that has very similar attributes.

There are also fixed index annuities today that don’t necessarily force you to convert your retirement savings into a fixed income stream. However, these enhanced benefits are probably why you purchased the annuity in the first place.

The annuity world created the Guaranteed Lifetime Withdrawal Benefit, the income rider, to make today’s annuities (index annuity, variable annuity, fixed annuity) more flexible.

If you have a two-tiered annuity contract and need advice on liquidating, transferring, or walking away from your annuity contract, contact us.

Shawn Plummer

CEO, The Annuity Expert

I’ve sold annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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