Fixed Annuities: How They Work and Why They Matter for Retirement

Fixed annuities can provide something that’s increasingly hard to find in today’s retirement landscape: guaranteed income. With people living longer and traditional pensions disappearing, annuities have become an essential part of retirement planning for millions of Americans.

If you’re exploring retirement income options, you might have questions about how fixed annuities work, whether they’re safe, and if they fit into your financial future. This guide walks you through the basics step by step so you can make an informed decision.

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What Is a Fixed Annuity?

A fixed annuity is an insurance contract. You pay a lump sum (or a series of payments), and in exchange, the insurer guarantees growth on your money and the option to convert it into income you can’t outlive. Think of it as trading uncertainty for predictability. While investments rise and fall with the market, a fixed annuity gives you steady accumulation and the option for lifetime payouts.

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Why They’re Relevant Now

The retirement equation has changed:

• By 2060, the U.S. population age 65+ is projected to reach 98 million, more than double today’s number【U.S. Census Bureau】.
• Longevity is increasing, which means retirements often last 25–30 years or more.
• Traditional pensions are rare, and Social Security alone often isn’t enough.

Against this backdrop, fixed annuities are one of the few financial products designed specifically to provide lifetime income.

How Fixed Annuities Work

Here’s a simplified breakdown of the process:

1. Contract Issued

You purchase the annuity with either a single payment or multiple contributions.

2. Principal Protection

Your initial premium is protected. Even if the market drops, you won’t lose your principal.

3. Guaranteed Growth

Your annuity grows at a fixed interest rate, set when the contract is issued. Some versions, called fixed index annuities, link interest to a market index giving growth potential without market losses.

4. Tax Deferral

Earnings grow tax-deferred, meaning you don’t owe taxes until you withdraw funds. This allows compounding to work more efficiently over time.

5. Income Distribution

When you’re ready you can convert the annuity into income. Options range from a lump sum to monthly payments guaranteed for life.

6. Riders and Add-Ons

Many contracts offer optional features, such as:

• Lifetime income riders (paychecks for as long as you live)
• Inflation adjustments
• Care-related benefits for unexpected health costs

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Fixed Index Annuities: A Hybrid Option

A fixed index annuity (FIA) combines principal protection with the potential for higher returns. Interest is credited based on an external index (such as the S&P 500®), but you’re never exposed to market losses.

Key features of FIAs:

• Floor at 0%: Your credited interest never goes below zero.
• Upside potential: You can capture part of market gains through index crediting strategies.
• Income guarantee: You can turn the value into a lifetime income stream.

Who Benefits from Fixed Annuities?

Fixed annuities may make sense if you:

• Want predictable, guaranteed growth
• Are concerned about outliving your savings
• Prefer income stability over market risk
• Value tax-deferred accumulation in retirement

They’re often used by pre-retirees (50s and 60s) preparing for income needs, as well as retirees who want to lock in financial security.

Identifying Your Retirement Income Needs

Every retirement plan starts with one key question: How much income will I need and how long will I need it? For many women, longevity risk is especially important. Women statistically live longer than men, making the ability to create guaranteed lifetime income a critical planning consideration.

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Next Steps

If you’re considering fixed annuities:

• Run the numbers with our Retirement Calculator to see how income fits into your plan.
• Talk with a licensed financial professional at Women Financial Power who can help you compare annuity types and features.

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