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What Is a Fixed Annuity? Why One Size Doesn’t Fit All

A fixed annuity is a financial product that guarantees* interest over a set period—typically 1 to 10 years—while allowing money to grow tax-deferred.** Some fixed annuities are simple savings vehicles, while others include optional features, called riders,^ that can support retirement income, liquidity needs, or legacy goals.

Because fixed annuities aren’t all built the same, one experience—or one opinion—doesn’t tell the whole story.

Just like deciding you dislike all ice cream because you once tried strawberry, dismissing annuities based on a single experience can result in missed opportunities that might better fit your retirement needs or other financial goals.

What’s the Difference Between Fixed Annuities and Fixed Indexed Annuities?

Fixed indexed annuities are a type of fixed annuity.

Traditional fixed annuities credit interest at a declared rate. Fixed indexed annuities (FIAs) calculate interest based on the performance of an external market index—such as the S&P 500®—subject to caps, participation rates, or spreads.

A cap sets the maximum interest that can be credited in a given period. A participation rate determines how much of the index’s gain is applied. A spread is a percentage deducted from the index’s return before interest is credited.

Key differences typically offered

Traditional Fixed Annuities

  • Fixed interest rates, sometimes guaranteed for a certain period of time
  • Principal protection
  • Retirement income through withdrawals or annuitization

Fixed indexed annuities

  • Interest linked to an index performance (with limits)
  • Principal protection from market loss
  • Optional lifetime income riders^

Note: Even though credited interest can vary, FIAs are not invested directly in the stock market.

Index-linked designs have become increasingly popular among retirees and pre-retirees seeking a balance between growth potential and protection.

In a recent report citing data from LIMRA, an insurance industry research and trade association, fixed annuities, fixed indexed annuities, and registered index-linked annuities (RILAs) accounted for about 80% of U.S. annuity sales in 2024.1 FIAs and RILAs are both index-linked annuity types that offer growth potential while limiting downside risk. RILAs allow for more downside risk than a fixed indexed annuity.

While product designs vary, most fixed annuities offer:

  • Guaranteed* interest rate
  • Tax-deferred growth**
  • Limited penalty-free withdrawals

In addition to the features above, fixed indexed annuities (FIAs)—a type of fixed annuity—also commonly offer optional riders for increased income, care needs, or death benefits (usually for a fee).

How Can a Fixed Annuity Help Meet Retirement Goals?

Optional riders, most commonly offered on fixed indexed annuities (FIAs), add flexibility that can help tailor a product for specific retirement goals. Examples include:

Guaranteed* lifetime income

Payments that continue for the life of the annuitant or spouse.

Long-term care riders

Enhanced access to funds for a set number of years without surrender charges for qualifying medical needs.

Death benefit riders

Enhanced payouts to beneficiaries over time.

Liquidity options

Penalty-free withdrawals of typically, 5% to 10% per year, depending on contract terms.

What are the Tax Benefits of a Fixed Annuity?

Taxes are one of the biggest—and most often overlooked—expenses in retirement, making tax treatment an important part of any income strategy.

Fixed annuities allow money to grow tax deferred. This tax treatment can help in two main ways:

  1. Taxation in retirement — Since many retirees may be in a lower tax bracket than during their working years, paying taxes on withdrawals during that time may reduce the amount of tax paid.

  2. Social Security taxation considerations2 — Interest from some taxable accounts, such as CDs, can count toward the income used to determine whether Social Security benefits are taxable. Because fixed annuities defer taxation, they may help limit that taxable income in some years.

Social Security tax thresholds**

  • Under $25,000 (single) or $32,000 (joint filing): no tax on benefits
  • $25,000–$34,000 (single) or $32,000–$44,000 (joint filing): up to 50% taxed
  • Above $34,000 (single) or $44,000 (joint filing): up to 85% taxed
  • Tip: Not intended to be tax advice; consult your tax consultant. Always consult a tax advisor to understand how a fixed annuity may impact your specific situation.

Key Takeaways: Fixed Annuities at a Glance

  • Fixed annuities guarantee* interest and offer tax-deferred^ growth.
  • Fixed indexed annuities (FIAs) are one type of fixed annuity with index-linked returns.
  • FIAs are commonly paired with optional lifetime income riders for guaranteed lifetime income with an additional fee.
  • Different contract designs support different retirement goals.
  • Tax treatment and withdrawal rules vary by contract.

Ready to Explore Your Options?

Fixed annuities come in many forms—some basic, others designed with added features to be more “customizable” and to meet specific retirement goals.

If you’re looking for more retirement certainty, an annuity may help.

Explore which type of fixed annuity may fit your needs and then speak with a licensed financial professional to compare products, income options, and tax considerations.

Explore Annuity Options
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Related Posts

1 https://icapital.com/insights/annuities/2024-annuity-insights-report

2 https://www.kiplinger.com/retirement/social-security/604321/taxes-on-social-security-benefits  January 8, 2026.

* Guarantees rely on the financial strength and claims-paying ability of the issuing insurer.

** Annuities are not endorsed by, and (company name) is not affiliated with nor approved by the Social Security Administration. The information contained here is for information only and is not intended to be individual financial advice. See your financial professionals to find out how annuities might work in your retirement income planning.

^ Withdrawals are subject to income taxation for the tax year that the withdrawals are made. If withdrawals are made prior to age 59½, they may also be subject to a 10% IRS penalty.

For advice, recommendations or more information, please visit with a financial professional.

Not FDIC/NCUA insured • Charges may apply • Not bank/CU guaranteed • Not a deposit • Not insured by any federal agency • May go down in value

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