Contingent Annuities: Your Comprehensive Guide to Weathering Financial Uncertainty

Shawn Plummer

CEO, The Annuity Expert

One of our most significant endeavors, as we journey through life, involves creating a secure financial future. An essential aspect of this process is understanding the financial instruments available to us and how they can help safeguard our future. One such instrument that’s often shrouded in mystery is the contingent annuity. This guide unravels the enigma surrounding contingent annuities, their potential benefits, and how they can be a part of your financial strategy.

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Breaking Down Contingent Annuities


A contingent annuity is an advanced financial product that provides a lifetime income stream but is only triggered under specific conditions. As the name suggests, its activation is contingent upon certain predetermined events, for instance, the depletion of a specified investment portfolio.

How Does a Contingent Annuity Work?

This unique financial instrument ties its benefits to an existing investment portfolio. The annuity kicks in when your portfolio’s value falls to a certain level, providing an income stream to help you weather the storm.

Let’s take a practical example. Assume you have an investment portfolio of $500,000 and purchase a contingent annuity that comes into effect when this portfolio is exhausted. If there comes a time when your investments run dry, this annuity will start providing regular payouts, effectively serving as a safety net.

Contingent Annuities

Advantages and Disadvantages of Contingent Annuities

Every financial instrument has its pros and cons. Similarly, contingent annuities also come with their own set of advantages and drawbacks.


Lifetime Income: Perhaps the most prominent benefit is the guarantee of income for life, a valuable feature for those concerned about outliving their savings.

Preservation of Portfolio: Unlike immediate annuities, where you have to give up a lump sum, contingent annuities allow you to keep your investment portfolio and only step in when necessary.


Complexity: Contingent annuities are complicated financial products, and their complexity might be daunting for some.

Limitations and Restrictions: They often come with numerous terms and conditions, including withdrawal restrictions and investment choices.

Advantages And Disadvantages Of Contingent Annuities

Contingent Annuity: An Essential Part of Your Financial Strategy?

Given their unique nature, contingent annuities can play a critical role in retirement planning, particularly for those seeking protection against market downturns and the risk of outliving their assets. However, it’s crucial to remember that these are complex financial tools, and thorough understanding and careful consideration are necessary before making them a part of your financial strategy.

More Information On Contingent Annuities

Next Steps

Contingent annuities are an intriguing financial instrument designed to provide a safety net during financial uncertainty. By understanding their benefits, drawbacks, and functionality, you can make an informed decision about their role in your financial plan. Remember, planning for the future doesn’t necessarily involve preparing for the worst, but it does mean being prepared should the worst happen. In the ever-changing landscape of personal finance, contingent annuities may be the contingency plan you need.

More Information On A Contingent Annuity

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Frequently Asked Questions

What type of an annuity is a contingent annuity?

A contingent annuity is a type of deferred annuity, which means that the income payments are received at a future date. It differs from an immediate annuity in that it only begins to provide payments when certain conditions are met, such as when the underlying investments reach a pre-specified level or date. A contingent annuity may also be referred to as a deferred contingent annuity or a conditional annuity.

Are there other types of annuities available?

Yes, there are several other types of annuities available. In addition to immediate and deferred annuities, such as the contingent annuity discussed in this guide, other popular types include variable and fixed-indexed annuities. Variable annuities allow you to invest in a selection of mutual funds, while fixed-indexed annuities are linked to an index such as the S&P 500. Additionally, hybrid annuities combine features from multiple types of annuities for added flexibility and protection. Speak with a financial advisor to determine which type of annuity best fits your needs.

What are the tax implications of contingent annuities?

The tax implications of contingent annuities vary depending on the type of annuity and the jurisdiction in which it is held. Generally, two types of taxes may apply to a contingent annuity: income tax and capital gains tax. For the former, any income received from an annuity will be subject to taxation, while for the latter, any gains realized from the sale of an annuity will be subject to taxes. Additionally, some jurisdictions may impose additional taxes on annuities such as estate or inheritance tax. It’s important to speak with a financial advisor and/or tax professional to understand the specific regulations applicable in your jurisdiction.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on 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.

The Annuity Expert is an online insurance agency servicing consumers across the United States. 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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