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Annuities Overview

The three annuity types most retirees consider

Annuities are insurance products designed to protect your savings and turn them into reliable retirement income. Here is how the most popular types actually work, in plain English.

Fixed Annuities

A guaranteed interest rate for a set period. Simple, predictable growth with full principal protection.

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Fixed Indexed Annuities (FIAs)

Growth linked to a market index with a floor of zero, so you can gain when the market rises and never lose principal when it falls.

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MYGAs

Multi-year guaranteed annuities lock in a fixed rate for 2–10 years. Often compared to CDs, but with tax deferral.

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Not sure which is right for you?

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Fixed vs. Fixed Indexed vs. MYGA: at a glance

Use this comparison to narrow down which annuity structure matches your goals. Every contract is different, so treat these as starting points, not guarantees.

FeatureFixed AnnuityFixed Indexed AnnuityMYGA
Rate typeFixed interest rate set by the insurerLinked to a market index (S&P 500, etc.) with caps and floorsGuaranteed rate locked for the full term
Principal protectionYes, contract value cannot drop due to market lossYes, principal protected with a zero-percent floorYes, guaranteed by the issuing insurance company
Typical term3 to 10 years5 to 10 years, often with longer surrender schedules2 to 10 years, chosen upfront
Growth potentialModerate, predictableHigher upside, capped by participation rates and spreadsFixed, known in advance
Best forSavers who want stable, guaranteed growthInvestors who want market participation without downside riskPeople who want a CD-like guaranteed rate with tax deferral

Want a personalized comparison? Request a free annuity review and a licensed advisor will send current rates for your state.

How annuity payouts are calculated

Turning a lump premium into dependable income is the main reason people buy annuities. Here is what happens behind the scenes when an annuity produces a payout.

You choose the payout type

Decide whether you want income now (immediate annuity) or income later (deferred annuity). Deferred annuities usually grow first, then convert to income.

The insurer calculates your base amount

For fixed and MYGA products, your payout is based on your premium, the guaranteed rate, and the length of the contract. For FIAs, the account value depends on index performance over time.

Lifetime income uses annuitization or a rider

When you are ready for income, the insurer applies an annuity factor or a guaranteed lifetime withdrawal benefit rider. Your age, gender, and the account value all affect the payout.

You receive payments on a schedule

Payments can be monthly, quarterly, or annual. Some contracts let you leave the balance to a beneficiary; others can cover two lives.

A simple example

Imagine you place $100,000 into a fixed annuity with a 5.5 percent guaranteed rate over five years. At the end of the term, your contract value would be roughly $130,696 before taxes and withdrawals. If you then annuitize that amount, the insurer could pay a set monthly amount based on your age and the payout option you choose. Actual rates, terms, and payouts vary by carrier and state.

Common questions about annuities

These answers cover the basics most retirees ask before speaking with an advisor. For advice specific to your situation, request a free consultation.

What is the safest type of annuity?

Fixed annuities, fixed indexed annuities, and MYGAs all protect your principal. None of these can lose value due to stock market declines. Safety also depends on the financial strength of the issuing insurance company, which is why we only work with highly rated carriers.

Can I lose money in an annuity?

With fixed, fixed indexed, and MYGA annuities, your principal is protected from market losses. The main risk to your balance is an early withdrawal during the surrender period, which may trigger a surrender charge. Always read the contract for the specific surrender schedule.

How is annuity income taxed?

Money inside an annuity grows tax-deferred, meaning you do not pay taxes on the growth until you withdraw it. When you take withdrawals, earnings come out first and are taxed as ordinary income. Qualified annuities in IRAs follow the same rules as other retirement accounts.

What happens to my annuity when I die?

Many annuities include a death benefit that pays the remaining account value to your named beneficiaries. Some contracts also allow you to choose a joint-life payout so income continues for a spouse. Be sure to confirm the beneficiary options before you buy.

How do I choose between a fixed annuity and a fixed indexed annuity?

Choose a fixed annuity or MYGA if you want a guaranteed, predictable rate and do not want to track an index. Choose a fixed indexed annuity if you want the chance for higher growth tied to market performance while still protecting your principal. A licensed advisor can run both illustrations side by side.

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