You've Spent 30 Years Building It. Here's Why a Fixed Indexed Annuity Might Be the Safest Place to Put It.

You spent 30 years contributing to a TSP or 401(k). You made the sacrifices, skipped the vacations, and stayed the course through three bear markets. Now you are retired, or close to it, and the market has just reminded you, again, that it does not care about your timeline.

The S&P 500 is down 4% year-to-date as of April 2026. Twelve months ago, April 2025 saw a -12% single-month drop following tariff announcements, and the VIX (Wall Street's fear index) spiked to 60.13, a level not seen since the early pandemic.

If someone mentioned rolling your TSP or 401(k) into a Fixed Indexed Annuity and your first reaction was skepticism, that reaction is understandable. FIAs are not widely taught, not widely discussed at water coolers, and not always well explained by the people who sell them.

This article is not a sales pitch. It is an explanation. Here is what a Fixed Indexed Annuity actually is, what it actually does, and why $128.2 billion flowed into them in 2025 alone.

Most people think retirement risk means "the market goes down." The actual risk is more specific, and far more dangerous.

It is called sequence of returns risk, and it is the single biggest financial threat facing anyone who just retired or is about to.

Here is the concept in plain terms: it does not matter what your portfolio averages over 30 years if it loses 25% in the first three. The timing of the losses matters just as much as the losses themselves, because when you are withdrawing income from a shrinking account, you are selling shares at the bottom and permanently reducing your future growth base.

Wade Pfau, PhD, CFA, one of the most cited retirement researchers in the country, found that 77% of a retirement portfolio's final outcome can be explained by the average returns of the first 10 years alone.

The numbers are stark. A portfolio that drops more than 15% in the first year combined with a 3.3% withdrawal rate faces a 6x greater chance of total depletion over a 30-year retirement. Flip it the other way: retirees who experience no losses in their first five years have only a 1-in-25 chance of outliving their savings.

The $2 Million Illustration

Consider two retirees, both with identical $2 million portfolios and the same $80,000 annual withdrawal strategy.

The 1995 retiree caught the bull market early. Despite taking $80,000 a year, the portfolio grew to $2.4 million after 10 years.

The 2000 retiree hit the dot-com crash immediately. Same portfolio. Same withdrawal rate. Portfolio collapsed to $600,000 in just three years.

That is a $1.4 million difference based purely on timing, not skill, not contribution rate, not investment selection. Just when they retired.

Sequence of returns risk does not get solved by "staying the course." It gets solved by protecting the early years of retirement from catastrophic loss. That is exactly what a Fixed Indexed Annuity is designed to do.

A Fixed Indexed Annuity (FIA) is a contract between you and an insurance company. You transfer a lump sum (your TSP or 401(k) rollover, for example) and the insurance company makes two guarantees: they protect your principal from market losses, and they credit growth tied to the performance of a market index like the S&P 500.

Before going further, here is what an FIA is not:

• ◆Not directly invested in the stock market. Your money sits in the insurance company's general account, not in an index fund.
• ◆Not a variable annuity. Variable annuities can lose principal. An FIA cannot lose principal due to market performance.
• ◆Not a savings account. Unlike a CD or money market, an FIA can credit substantial growth in strong market years.

The two components of an FIA work together:

The protection mechanism is the zero floor, covered in depth below.

The growth mechanism is index-linked credits. A cap rate means your credited growth is capped at a maximum (for example, 10-12% even if the S&P gains 25%). A participation rate means you receive a set percentage of whatever the index gains (for example, 90% of a 10% gain = 9% credited).

Tax treatment: growth inside an FIA is tax-deferred, just like a traditional IRA or TSP. A direct rollover from your TSP or 401(k) into an FIA triggers no taxes and preserves your tax-deferred status.

Here is the core principle of an FIA: in any year the index is negative, your credited rate is 0%, not negative. Your principal never decreases due to market performance.

That single feature changes the entire retirement math.

You do not need to win every year. You need to stop losing. When you eliminate the down years, you stop the compounding damage and stop selling income at the worst possible time.

Zero Floor in Action

The table below compares two $500,000 accounts through four years of real market-style volatility: one in a traditional market-exposed account, one in an FIA with a 10% annual cap:

Cap rate assumed at 10% for illustration purposes. Actual cap rates vary by carrier, product, and contract year.

The traditional account needed four years just to approach its starting point, and a retiree withdrawing income from it during Year 3 locked in those losses permanently. The FIA account never went backward. Every dollar that survived Year 3 compounded forward into Year 4.

Most people who hear "annuity" think about the accumulation side: principal protection and index growth. Far fewer know about the feature that separates an FIA from every other financial vehicle: the lifetime income rider.

A lifetime income rider is an optional add-on that converts your FIA into a personal pension. Regardless of what the market does, regardless of how long you live, you receive a guaranteed monthly or annual income for the rest of your life, even if the underlying account value eventually reaches zero due to withdrawals.

Here is a plain example: you roll $500,000 into an FIA with a lifetime income rider at age 65. You let the account grow and at age 70, you activate the income. Depending on the product, you might receive a guaranteed $2,500 or more per month for life, a payment that cannot be outlived, cannot be market-dependent, and continues regardless of what Congress does.

That last point matters. As we have covered previously, the Social Security trust fund is projected to hit insolvency by 2032, triggering an automatic 24% benefit cut for every retiree. A lifetime income rider from an FIA creates private pension income completely independent of Washington, with no trust fund to run dry and no vote that can cut your check.

One important distinction: a lifetime income rider is different from full annuitization. With an income rider, you typically retain control of the underlying account value. If you pass away before depleting the account, the remaining balance goes to your heirs. This is not a one-way street.

The most common objection to annuities is fees. It is worth examining that objection carefully, because the comparison often lands in a very different place than most people expect.

The U.S. Department of Labor reports that the average 401(k) carries fees of approximately 0.55% annually. On the average 401(k) balance of $141,542, that is $778 per year, or $15,560 over 20 years and $23,340 over 30 years, not counting the compounding growth those dollars would have generated.

Scale it up to a $500,000 rollover and the numbers become significant:

• ◆At 1% annual fees: approximately $30,000 lost per $100,000 invested over 20 years
• ◆At 2% annual fees: the portfolio gap reaches $2.2 million over 30 years compared to the lowest-fee option

A Fixed Indexed Annuity charges no direct management fee to the account holder. The insurance company earns its margin through the spread between what it earns on its general account assets and what it credits to policyholders, similar to how a bank earns on deposits. That cost is internal, not a line item against your balance.

The only direct cost you may see is a lifetime income rider charge, typically around 0.75%–1.25% annually on the benefit base only, not the entire account value. That rider buys the lifetime income guarantee.

Fee Comparison

Note: TSP fees are among the lowest available anywhere and represent a genuine advantage worth preserving if liquidity is a priority.

The people buying Fixed Indexed Annuities are not unsophisticated. They are retirees and near-retirees who lived through 2001, 2008, and 2020 and decided they were done gambling the retirement years on sequence timing.

According to the Life Insurance and Marketing Research Association (LIMRA):

• ◆FIA sales reached $128.2 billion in 2025, up 31% from the prior year
• ◆This was the fifth consecutive record year for FIA sales
• ◆The broader annuity market reached $434.1 billion in 2024, up 13%, its own record

$128 billion is not a fad. It is a structural shift driven by 10,000 Baby Boomers retiring every day into a market experiencing the highest volatility in years.

That volatility is real. Intraday trading volatility was up 31% in 2025 compared to 2024. The April 2025 tariff shock, a -12% drawdown in a single month, sent a wave of near-retirees and recent retirees scrambling for protection. Many of them found it in an FIA.

The math of protection is simply more compelling at retirement than it is at 40. When you have 20+ years to recover from a bear market, staying invested makes sense. When you are 65 and withdrawing income, a 30% drop is not a paper loss. It is a structural wound.

Two of the most respected carriers in the FIA space, American Equity Investment Life and F&G (Fidelity & Guaranty Life), offer substantial premium bonuses on rollover funds. These are real dollar additions to your account value, credited the moment your rollover lands.

American Equity: IncomeShield BONUS 10

American Equity's IncomeShield BONUS 10 credits a 14% premium bonus on first-year premiums.

On a $400,000 TSP or 401(k) rollover, that is a $56,000 immediate bonus credit added to your account value before a single index credit has been earned.

The bonus vests over 10 years. If you stay in the contract through the full term, which aligns with a retirement income strategy anyway, the full bonus is yours. Early surrender during the surrender charge period may forfeit unvested portions.

F&G: Performance Pro 10

F&G's Performance Pro 10 credits a 13% premium bonus for clients ages 0–75 in select states.

On the same $400,000 rollover, that is a $52,000 immediate bonus credit at contract issue.

The Performance Pro 10 is designed for both accumulation and income, offering flexibility for clients who want to keep options open before activating income.

Important: Bonus percentages, vesting schedules, and state availability are subject to change and vary by state. Early withdrawals during the surrender charge period may forfeit unvested bonus amounts. These products are designed for long-term retirement income, not short-term liquidity. A licensed professional should provide a carrier-specific illustration before any decision is made.

Both American Equity and F&G carry strong financial strength ratings from A.M. Best. Ask your advisor to confirm current ratings at the time of your review.

The TSP G Fund is one of the safest investment vehicles in the world. Its principal is backed by the U.S. government and it has never had a negative year. That is genuinely valuable and worth acknowledging honestly.

But there is a tradeoff. The G Fund's compound annualized return since its 1987 inception is 4.7%, but its recent 5-year annualized return is approximately 2.4%. After taxes on withdrawals and inflation running at 3%+, the G Fund has historically struggled to preserve purchasing power on a net basis. It protects your nominal dollars while your real buying power slowly erodes.

An FIA offers a different combination: principal protection with the possibility of meaningful index-linked growth, and with an income rider, a guarantee that extends well beyond what a G Fund can provide.

Any financial professional who does not acknowledge the tradeoffs of an FIA is not doing their job. Here are the real ones.

Surrender Charges

FIAs carry surrender charge periods, typically 7 to 10 years for products designed for retirement rollovers. During this period, withdrawals beyond the free withdrawal amount (typically 10% of the account value per year) trigger a declining surrender charge.

Who this matters to: retirees who may need a large lump sum during the surrender period, such as for a home renovation, medical emergency, or other major expense.

Who this matters less to: retirees who have other liquid assets (brokerage accounts, emergency savings, Social Security income) covering those needs, and who intend to use the FIA specifically for long-term income. If the money was earmarked for retirement income and is unlikely to be needed in a lump sum, the surrender period rarely becomes an issue.

Cap Rates

In a strong bull market year, say the S&P 500 up 28%, an FIA with a 10-12% cap will underperform a direct index investment. That is the acknowledged tradeoff for the zero floor.

The math works in the FIA's favor over time because the S&P 500 has been negative in roughly 25% of calendar years since 1928. Eliminating those down years and keeping the money that would have been lost compounding forward has historically produced competitive long-term returns, especially in volatile or bear-heavy decades.

Complexity

FIAs have more moving parts than a target-date fund. Cap rates, participation rates, index crediting strategies, income rider terms. It can feel overwhelming on paper.

The practical solution: work with a licensed insurance professional who can run a carrier illustration showing exactly how the product performs under different scenarios before you commit. A good illustration takes 20 minutes to review and answers most questions on the spot.

If you have read this far, you now understand FIAs better than most people who make this decision. That matters. The people who end up in the wrong product, or who avoid a good one out of unfamiliarity, are usually the ones who never had it explained clearly.

The right next step is not a commitment. It is a conversation where we look at your specific numbers: your TSP or 401(k) balance, your age, your income needs, and two or three carrier illustrations side by side. You will see exactly what the product does, exactly what the tradeoffs are, and exactly whether it makes sense for you.

No obligation. No pressure. Just the numbers.

All Financial Freedom works with retirees and near-retirees navigating TSP and 401(k) rollover decisions. Schedule a free retirement review and let us run the numbers together.

• ◆LIMRA, U.S. Annuity Sales Set New Record in 2025: limra.com
• ◆Wade Pfau, PhD, CFA, Sequence of Returns Risk: retirementresearcher.com
• ◆Charles Schwab, Timing Matters: Understanding Sequence of Returns Risk: schwab.com
• ◆Morningstar, How to Avoid Outliving Your Retirement Savings: morningstar.com
• ◆U.S. Department of Labor, A Look at 401(k) Plan Fees: dol.gov
• ◆Employee Fiduciary, 401(k) Fees: The Hidden Retirement Killer: employeefiduciary.com
• ◆Thrift Savings Plan, G Fund: tsp.gov
• ◆Winthrop Wealth, April 2025 Market Recap: S&P 500 Volatility, Tariff Impacts: winthropwealth.com
• ◆American Equity Investment Life Insurance Company: american-equity.com
• ◆F&G Life & Annuity: fglife.com
• ◆National Organization of Life and Health Insurance Guaranty Associations: nolhga.com