How retirees turn savings into income for life
A plain-English guide to fixed and fixed-indexed annuities: what they are, what they can (and cannot) do, and how to tell if one fits your retirement.
- 01The retirement question no one prepares you for
- 02What an annuity actually is
- 03Three things a fixed annuity can do
- 04Fixed vs. fixed-indexed, in plain English
- 05The trade-offs worth knowing
- 06Is it a fit for you?
- 07Common questions
The retirement question no one prepares you for
For 40 years the advice was simple: save into your 401(k). But almost no one teaches the second half, how to turn that savings into a paycheck once the working paychecks stop.
Your parents or grandparents may have had a pension: a check that arrived every month for life. Most of us do not get that anymore. So the job of making savings last 20, 30, even 35 years now falls on us.
It is why the most common worry in retirement is not what you might expect. Surveys keep finding the same thing: retirees fear running out of money more than almost anything else.
Most people spend decades learning how to save. Almost no one is taught how to spend it down without the fear of running out.
What an annuity actually is
An annuity is an insurance product. In plain English, it is a contract with an insurance company: you place a portion of your savings with the insurer, and in return the company agrees to protect that money and pay it back to you as income, often for the rest of your life.
It is not a bank deposit, and it is not an investment account. It is one tool, among several, that some retirees use for the part of their money they want to be predictable.
This guide covers fixed and fixed-indexed annuities. It does not cover variable annuities, which work differently and are regulated as securities.
Three things a fixed annuity can do
Income you can count on for life
A fixed annuity can be set up to pay you a steady amount every month for as long as you live, no matter how long that is. Those income guarantees are backed by the claims-paying ability of the issuing insurer.
Protection from market loss
A fixed-indexed annuity is designed to protect the money you put in from market downturns. When the market falls, your principal is not exposed to those losses (though growth in a given year may be limited).
Tax-deferred growth
Growth inside the annuity is generally not taxed until you withdraw it, which can let it compound over time. Withdrawals are taxable, and if taken before age 59½ may be subject to a penalty. This is not tax advice; consult a tax professional.
Americans moved a record $464.1 billion into annuities in 2025, a fourth straight record year, as more retirees looked for one part of their money that was protected and predictable.
Source: LIMRA, 2025 U.S. retail annuity sales.
Fixed vs. fixed-indexed, in plain English
Fixed annuity
A set interest rate for a set period. It can feel similar to a CD, but it is an insurance product with tax-deferred growth (an annuity is different from a CD). A good fit when you want simple and predictable.
Fixed-indexed annuity
Your credited growth is tied to a market index, with a floor that protects your principal from loss in down years and a cap or participation rate that limits how much you earn in up years. Index credits are not guaranteed. A good fit when you want protection with a chance for more than a fixed rate.
The trade-offs worth knowing
An honest guide names the downsides too. An annuity is not right for everyone, and here is what to weigh before you decide.
Liquidity
This is money you should not need all at once. Keep a separate emergency fund outside of it.
Taxes
Withdrawals of growth are taxable as income, and withdrawals before age 59½ may carry a 10% federal penalty.
Not for every dollar
An annuity is one option, not the answer for everything. It tends to fit a portion of your savings, not all of it.
It varies by state
Products, features, and rates differ by state and are subject to availability and change.
Is it a fit for you?
An annuity tends to be worth exploring if you can say yes to a few of these:
It is probably not the right fit if you need full access to all of your money at any time, or you are comfortable leaving everything exposed to the market.
Common questions
Is my money safe in an annuity?
Fixed and fixed-indexed annuities are designed to protect your principal from market loss. Guarantees are backed by the claims-paying ability of the issuing insurer.
Can I lose my principal to a market drop?
With a fixed or fixed-indexed annuity, your principal is not exposed to market losses. Note that withdrawing more than your contract allows during the surrender period can reduce your value through surrender charges.
What happens to the money when I pass away?
Most annuities let you name a beneficiary who receives the remaining value or a death benefit. The specifics vary by product and state.
How do I know how much income I could get?
It depends on your age, how much you place, and when you start income. A licensed professional can prepare a personalized, no-obligation estimate for you.
Is this the same as an investment?
No. An annuity is an insurance product, not an investment account. This guide does not cover variable annuities, which are securities.
See what this could look like for your retirement
Book a free retirement income assessment with a licensed annuity professional from All Financial Freedom. They will walk through your options and, if you would like, prepare a personalized income estimate. No cost, and no obligation to buy.
This guide is for educational purposes only and is an advertisement for fixed and fixed-indexed annuities, which are insurance products. It is not tax, legal, or investment advice. Annuities are not bank deposits, are not FDIC insured, and are not guaranteed by any bank or government agency. Any guarantees are backed by the claims-paying ability of the issuing insurer. Annuities have limitations, including surrender charges; withdrawals may be taxable and, if taken before age 59½, may be subject to a 10% federal tax penalty. Fixed-indexed annuities are not securities and do not participate directly in any stock market or index; index credits may be limited by caps, spreads, or participation rates. This guide does not describe variable annuities. Products, features, and rates vary by state and are subject to availability and change. All Financial Freedom is a licensed insurance agency; a licensed insurance agent will contact you. Please consult a tax professional regarding your specific situation.
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