Fixed Annuities
A fixed annuity is a contract with an insurance company that turns part of your savings into guaranteed income. You hand over a lump sum, the company locks in a competitive interest rate, and it pays you back on a set schedule, often for the rest of your life. Your principal is protected, so a bad year in the market does not lower your payment.
How it works
From savings to a steady paycheck
- 01
You put money in
You fund the annuity with a lump sum, or in some products a series of payments. This is your premium.
- 02
It grows, tax-deferred
During the accumulation phase your money earns interest, and you don't pay tax on that growth until you take it out.
- 03
You turn it into income
When you are ready, you begin withdrawals or convert the balance into guaranteed payments for a set period or for life.
- 04
What is left passes on
Any remaining value goes to the beneficiary you name, usually outside of probate.
The kinds we work with
"Fixed" means the insurance company carries the investment risk, so your principal is not exposed to the stock market. A few forms suit different goals.
Multi-year guaranteed (MYGA)
Set rateA fixed interest rate locked in for a chosen term, often three to seven years. It can be a competitive, tax-deferred alternative to a bank CD, though it is an insurance product, not a bank deposit.
Fixed indexed
Index-linkedYour principal is protected and interest is tied to a market index, up to a cap. In a down year the index credit is typically zero, so the drop does not pull your principal down with it.
Immediate (SPIA)
Income nowA lump sum turned into guaranteed income that starts right away, for life or for a set number of years.
Deferred income
Income laterLike an immediate annuity, but income begins on a future date you choose, which can secure a larger payment down the road.
A fixed indexed annuity is not a stock-market investment and is different from a variable annuity, where your balance can fall.
An honest look
What you get
- Your principal is protected from market losses.
- The growth rate is set in writing before you commit.
- You can choose income you won't outlive.
- Growth is tax-deferred until you withdraw it, meaning you decide when to pay taxes.
- Any remaining value passes to the beneficiary you name, usually outside of probate.
What to weigh
- Taking out more than the free amount early means a surrender charge.
- The money is meant to sit for several years, so it is less liquid than savings.
- A flat payment can lose ground to inflation unless you add an inflation option.
- Guarantees depend on the insurer's financial strength, not the government.
Is a fixed annuity right for you?
Often a good fit if
- You are at or near retirement and want predictable income.
- You want to protect savings you won't need to touch for a few years.
- You already have emergency cash set aside.
- You want to pass money to a beneficiary efficiently.
Probably not if
- You might need the money soon or want full access to it.
- You have a long horizon and want maximum growth.
- You cannot leave the funds untouched through the surrender period.
Fixed annuities: common questions
Are fixed annuities safe?
A fixed annuity is one of the more conservative ways to hold retirement money. Your principal is protected from market drops, and the growth rate is written into the contract. The guarantees rest on the financial strength of the insurance company, so we work with established, highly rated carriers.
Can I lose money in a fixed annuity?
Not to a market downturn. A fixed or fixed indexed annuity protects your principal, so a bad year in the market doesn't lower your balance. You can still lose money if you withdraw more than the contract allows during the surrender period and pay a charge.
Are fixed annuities FDIC insured?
No. Annuities aren't bank products, so they aren't FDIC insured. They're backed by the financial strength and claims-paying ability of the insurance company that issues them, which is why the choice of carrier matters.
How are annuities taxed?
Your money grows tax-deferred, so you don't pay tax on the interest until you take it out. With an annuity funded by after-tax savings, withdrawals are taxed as ordinary income on the earnings first. Taking earnings out before age 59½ usually adds a 10% IRS penalty. Tax rules depend on your situation, so this is general information, not tax advice.
What is a surrender charge?
It's a fee for taking out more than your contract's free amount during the early years, called the surrender period. The charge usually shrinks each year and goes away once the period ends. We walk through these limits with you before you decide.
What happens to the money when I die?
Whatever value is left passes to the beneficiary you name, usually without surrender charges and outside of probate. How much remains depends on the contract and the income option you chose.
Will I outlive the income?
If you choose a lifetime income option, the insurance company guarantees payments for as long as you live. That is one of the main reasons people use annuities.
This page is general information, not individual financial, tax, or legal advice. Figures and rules change over time. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurer.
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