Guaranteed Income in Retirement

One of the most pressing concerns in retirement is the possibility of outliving your savings. Retirement annuities offer a way to create a reliable income stream that can last the rest of your life. But what exactly is a retirement annuity, and how can it strengthen your long-term financial strategy—especially if you want protection from market downturns? For many retirees, a Fixed Index Annuity (FIA) offers the right balance of growth, security, and peace of mind.

This guide explains the essentials of retirement annuities—including how they work, types to consider, and how to maximize their benefits for lasting income. We’ll also cover why more retirees today are turning to FIAs as a powerful solution for guaranteed retirement income.

Defining Retirement Annuities

A retirement annuity is a contract with an insurance company that provides guaranteed income in retirement. It functions like a self-funded pension, offering a consistent stream of payments over a set period or for life.

You can fund an annuity through a lump sum or recurring payments. In return, the insurer guarantees regular income, helping you create a dependable financial foundation throughout retirement.

How Annuities Create Retirement Income

When you purchase an annuity, you contribute funds to an insurance provider either as a one-time payment or over time. These funds are then invested, and in return, the insurer distributes income to you based on your contract.

Payments may start immediately or at a future date, depending on the annuity type. The income amount depends on factors like your age, the annuity type, and your selected payout options. To explore different income strategies, visit our Annuity Payout Options page.

Key Benefits of Retirement Annuities

Retirement annuities provide:

• Guaranteed lifetime income — ensuring stability no matter how long you live
• Tax-deferred growth — earnings aren’t taxed until withdrawn
• Higher payout potential — especially for those who live longer than average

Potential Limitations to Consider

Like all financial products, annuities come with trade-offs. Common drawbacks include:

• Limited liquidity: Early withdrawals can trigger penalties or surrender charges
• High fees (mostly with variable annuities): Some contracts include administrative, mortality, or management charges
• Risk of early death: If you pass away soon after payouts begin, total benefits received may be lower than contributions unless your annuity includes a period-certain or beneficiary option

Types of Retirement Annuities

There are several types of retirement annuities, each offering different features, risk levels, and payout structures. Here’s a breakdown of the most common options:

Fixed Annuities: Steady and Predictable Income

Fixed annuities offer guaranteed interest and fixed monthly payments. They provide certainty, making them ideal for those who prioritize stability over growth. However, they typically don’t adjust for inflation, meaning your purchasing power may decline over time.

Fixed Index Annuities: Market Performance with Downside Protection

Fixed Index Annuities (FIAs) link your returns to a market index, like the S&P 500. If the index rises, your account earns a portion of the gains. If it falls, you receive no gain, but crucially, you also avoid losses. FIAs are uniquely positioned to deliver growth potential without exposing your retirement savings to market downturns.

Variable Annuities: Market-Linked Growth—With Higher Risk and Complexity

Variable annuities allow you to invest in sub-accounts similar to mutual funds. While they offer higher growth potential, they also expose you directly to market volatility. This means your account value—and your future income—can decrease in down years. Variable annuities are also known for having higher fees, complex structures, and less predictable payouts, making them less suitable for retirees who want stable, guaranteed income.

Deferred Annuities: Plan Now, Pay Later

Deferred annuities accumulate value over time and begin payments later—usually at retirement. They come in fixed, indexed, or variable forms and are useful for building future income. FIAs are a popular choice for deferred income thanks to their blend of protection and growth.

Immediate Annuities: Instant Income Stream

With an immediate annuity, income payments begin almost immediately after you contribute a lump sum. This is often used by retirees or those who receive a windfall and want to convert it into guaranteed income.

Quick Comparison: Annuity Types

Type	Growth Potential	Market Risk	Payout Predictability	Best For
Fixed	Low (steady interest)	None	High	Those who value guaranteed, predictable income and are less concerned about growth
Fixed Index	Moderate to strong (index-linked, never negative)	None	High	Those seeking growth potential with zero risk of loss and reliable guaranteed income
Variable	High (market-based)	High	Low	Those comfortable with market risk, volatility, and higher fees—income is not guaranteed

Is a Fixed Index Annuity Right for You?

• You want dependable, guaranteed income in retirement.
• You like the idea of market-linked growth but don’t want your principal exposed to loss.
• You prefer a solution that balances opportunity and safety.
• You want to supplement other retirement income such as Social Security or a pension.
• You’re comfortable with some tradeoffs on liquidity for greater security and peace of mind.

If these sound like your priorities, a Fixed Index Annuity may be a great fit for your retirement plan.

How to Choose the Best Retirement Annuity

• Clarify Your Priorities: Define your income needs and what role you want guaranteed income to play.
• Understand Index Choices: Each FIA offers various index options and crediting methods—ask for clear explanations and illustrations.
• Compare Features: Consider optional income riders, inflation adjustments, and withdrawal flexibility. Review all fee disclosures.
• Know Surrender Periods: Learn how long your funds must stay invested before full access, and the available penalty-free withdrawal options.
• Ask for Historical Illustrations: See how the annuity would have performed in different market environments and ask questions about all contract terms.

Tip: Your retirement needs and goals can change. Review your annuity strategy and all income plans every few years to ensure they continue to match your priorities.

Key Takeaways

• FIAs offer the “best of both worlds”—growth potential and downside protection, with reliable lifetime income.
• Variable annuities carry substantial market risk, less predictability, and generally higher costs, making them less ideal for most retirees.
• Fixed annuities offer safety and predictability, but less opportunity for growth—while FIAs deliver a balanced approach.
• Always review contract details and illustrations and consider professional guidance before making your choice.
• Periodic review helps you stay on track as your life and the markets evolve.

Glossary of Key FIA Terms

• Surrender Charge: A fee for early withdrawals before the end of the surrender period.
• Crediting Method: The formula used to calculate how interest is credited to your FIA.
• Participation Rate: The percentage of the index gain credited to your account.
• Cap Rate: The maximum interest rate that can be credited in a given period.
• Income Rider: An optional benefit for guaranteed lifetime income, often with additional features or protections.
• Annuitization: Turning the value of your annuity into a series of regular income payments.

Final Thoughts

Fixed Index Annuities provide a compelling solution for retirees who want market-linked growth and principal protection—without the volatility and complexity of variable annuities. By understanding your options and choosing carefully, you can secure income and peace of mind for your retirement years.