What Is a Fixed Indexed Annuity?
A fixed indexed annuity (FIA) is a retirement-focused insurance contract designed to protect your principal from market losses while allowing your money to grow based on the performance of a market index—such as the S&P 500®, Nasdaq-100®, or a volatility-controlled index. For many retirees and pre-retirees, FIAs strike a balance between safety and growth, offering an alternative to traditional fixed annuities, market-based investments, or bank products like CDs.
If you’re asking what a fixed indexed annuity is, the simplest explanation is this: it gives you upside potential linked to the market without exposing your retirement savings to direct market risk. Your money never declines due to index losses, and credited gains are locked in annually.
Compare Fixed Indexed Annuity Quotes
We shop 100+ carriers to find competitive caps, participation rates, income riders, and liquidity options.
What Is a Fixed Indexed Annuity?
A fixed indexed annuity credits interest based on an index-linked formula rather than paying a traditional fixed rate. You do not own the index, and dividends are typically excluded, but your contract earns interest according to clearly defined rules. These rules may involve caps, participation rates, or spreads, depending on the strategy selected.
One of the defining features of an FIA is the zero-loss floor. In most strategies, if the index finishes a crediting period negative, your credited interest is simply zero—your principal and any prior gains remain intact. This makes FIAs appealing for investors who want growth potential but are unwilling to accept market volatility in retirement assets.
How Fixed Indexed Annuities Work in Practice
When you purchase a fixed indexed annuity, your premium is allocated among one or more crediting strategies. These strategies determine how interest is calculated at the end of each crediting period—most commonly annually.
- Crediting methods: Annual point-to-point, monthly sum, performance-trigger strategies, and volatility-controlled indices are commonly available.
- Caps: A maximum rate of interest you can earn during a crediting period.
- Participation rates: The percentage of the index gain credited to your account.
- Spreads: A fixed percentage subtracted from the index return.
At the end of each period, gains—if any—are locked in. The next crediting period begins with new index values and potentially updated caps or participation rates, subject to the guarantees stated in your contract.
Why Retirees Choose Fixed Indexed Annuities
Many clients we work with at Diversified Insurance Brokers are transitioning from accumulation to preservation. FIAs are often used to replace or supplement assets previously held in CDs, bonds, or conservative investment portfolios.
- Principal protection: No market losses to your credited account value.
- Tax-deferred growth: Earnings compound without current taxation for non-qualified funds.
- Income flexibility: Many FIAs can later be paired with a guaranteed lifetime income rider.
- Allocation flexibility: You can diversify across multiple index strategies and fixed-rate buckets.
Important Tradeoffs to Understand
While FIAs offer meaningful benefits, they are not designed for short-term investing. Understanding the tradeoffs is essential before purchasing.
- Surrender periods: Most FIAs include a multi-year surrender schedule, though penalty-free withdrawals (often 10% annually) are common.
- Complexity: Index strategies vary by carrier and must be reviewed carefully.
- Rider costs: Optional income or enhanced benefits may add annual fees.
- Renewal terms: Caps and participation rates can change, subject to contractual minimums.
Fixed Indexed Annuity vs Other Retirement Options
Fixed indexed annuities are often compared with traditional fixed annuities, variable annuities, and even bank CDs. Each serves a different purpose within a retirement strategy.
| Feature | Fixed (MYGA) | Fixed Indexed (FIA) | Variable Annuity | Bank CD |
|---|---|---|---|---|
| Principal Protection | Yes | Yes | No | Yes (FDIC limits) |
| Growth Potential | Fixed rate | Index-linked | Market-based | Fixed rate |
| Tax Deferral | Yes | Yes | Yes | No |
| Income Options | Limited | GLWB or annuitization | GLWB or annuitization | None |
Who Is a Fixed Indexed Annuity Best For?
Fixed indexed annuities tend to work best for investors who value stability, predictability, and long-term planning. Common use cases include:
- Pre-retirees within 5–10 years of retirement.
- Retirees seeking protected growth before turning on income.
- Investors reallocating from CDs or conservative bond portfolios.
- Households planning for future lifetime income with controlled risk.
Preview Income Scenarios
Many FIAs are used first for protected growth, then later converted into income using a rider or annuitization option. The tool below allows you to preview potential income illustrations based on age, deferral period, and payout structure.
Schedule a Free Fixed Indexed Annuity Consultation
Review caps, participation rates, income riders, and liquidity—no pressure.
Prefer to talk? Call 800-533-5969
See Your Best FIA Options
We compare caps, participation rates, rider costs, and liquidity across 100+ carriers.
FAQs: Fixed Indexed Annuities
Can I lose money in a fixed indexed annuity (FIA)?
Most FIA index strategies have a 0% floor, so index declines typically won’t reduce your credited principal or prior credited interest. However, surrender charges, rider fees, and excess withdrawals can reduce your contract value—especially in the early years.
Do fixed indexed annuities have annual fees?
Many FIAs do not have an explicit annual fee for the base contract. Optional riders—like guaranteed lifetime income (GLWB), enhanced death benefits, or certain bonus features—may add an ongoing cost shown on your illustration.
Do caps and participation rates change?
Yes. Caps, participation rates, and spreads are generally set for a crediting period and can change at renewal, subject to any minimums stated in the contract. That’s why it’s important to compare carrier renewal history and contractual guarantees before buying.
Do FIAs include dividends from the index?
Typically no. With an FIA, you do not own the underlying index, and dividends are generally not included in credited interest calculations. Your interest is determined by the index-linked formula stated in the contract.
How are fixed indexed annuities taxed?
For non-qualified money, growth is tax-deferred and withdrawals are generally taxed as ordinary income to the extent of gain. For qualified money (IRA/401(k) rollovers), taxation follows the rules of the retirement account.
Are fixed indexed annuities good for retirement income?
They can be. Many FIAs offer optional income riders (GLWB) that can create guaranteed lifetime withdrawals without annuitizing. The best fit depends on your timeline, liquidity needs, and whether you value protected growth, guaranteed income, or both.
What’s the difference between account value and an income benefit base?
The account value is the money you own and can access (subject to contract rules). The income benefit base (if you add an income rider) is a calculation value used to determine guaranteed lifetime withdrawals and is typically not a cash value you can withdraw.
How much can I withdraw each year?
Many FIAs allow penalty-free withdrawals—often around 10% per year—after the first contract year. Taking more than the free-withdrawal amount may trigger surrender charges and can reduce future guarantees.
Is a fixed indexed annuity better than a CD?
It depends on your goals. CDs offer fixed bank interest and FDIC protection (within limits), while FIAs offer insurance-based principal protection, tax deferral (for non-qualified funds), and index-linked interest potential with limits like caps and participation rates.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
