What to Know Before Buying a Fixed Annuity
With market volatility at its highest levels in years and savers searching for stability, fixed annuities have become one of the most reliable ways to secure guaranteed growth. Many retirees are comparing them to bank CDs and realizing that fixed annuities not only offer stronger rates, but also provide tax-deferred growth and long-term predictability that traditional savings vehicles simply can’t match. However, not all fixed annuities are built the same, and choosing the wrong structure—or misunderstanding the fine print—can limit your flexibility or reduce your long-term returns.
If you are evaluating whether a fixed annuity fits into your retirement plan, it’s important to understand how the guarantees work, what rules come with the contract, and how to identify which features matter most. Below is a deeper look at the key considerations every retiree should review before committing to a fixed annuity.
Understanding the Guaranteed Rate
The guaranteed interest rate is the core of any fixed annuity. These rates are typically locked in for a set term, most commonly three, five, or seven years. Today’s market includes contracts offering 5.40% or higher, making them extremely competitive compared to CDs, treasuries, or high-yield savings accounts. However, the structure of the guarantee matters. Some annuities guarantee the rate for the entire term, while others may only guarantee it for the first year before adjusting downward. Before purchasing a fixed annuity, confirm whether the rate is fully guaranteed for the whole contract or if it includes a “teaser” first-year enhancement.
For retirees looking for predictable, stable accumulation, a fully guaranteed multi-year rate is generally the most straightforward and transparent option. It mirrors the simplicity of a CD while adding the powerful advantage of tax-deferred growth.
Knowing the Withdrawal and Liquidity Rules
A fixed annuity is designed for stable, long-term growth, so it naturally comes with rules governing withdrawals. Most contracts allow up to ten percent of the account value to be accessed each year without penalty. This built-in liquidity feature is helpful for emergencies or unplanned expenses. That said, every insurer defines its withdrawals slightly differently—some allow ten percent of the principal, others ten percent of the total accumulation value. Certain annuities allow cumulative withdrawals if unused from prior years, while others do not.
Surrender charges also apply if you take more than the free-withdrawal amount during the contract period. Understanding these rules ahead of time helps ensure the annuity you select aligns with your liquidity needs and your retirement timeline. If you may need significant access to your funds within the next few years, a shorter-term annuity or a more flexible structure may be appropriate.
What Happens When the Term Ends?
A commonly overlooked aspect of buying a fixed annuity is understanding how the contract behaves once the initial term expires. Many insurers automatically renew the annuity into another guaranteed period—often at a lower renewal rate—unless you take action within the window following maturity. At that point, you will typically have several choices: withdraw the entire balance without penalty, renew the contract, transfer the funds to another annuity, or roll them over into another retirement account if the annuity is held inside an IRA.
Being proactive at the end of the term ensures you remain in control of your money and never get locked into a renewal rate that’s below what the open market offers. This flexibility is one of the reasons why so many retirees rely on Diversified Insurance Brokers to monitor their contract maturities and help them compare options at renewal.
How Diversified Insurance Brokers Helps You Compare Fixed Annuities
Fixed annuities are straightforward on the surface, but the variations between insurers—rate guarantees, withdrawal structures, renewal rules, and liquidity features—can significantly affect long-term performance. As an independent, nationwide agency, Diversified Insurance Brokers compares the full marketplace of fixed annuities to identify which carriers are offering the strongest guarantees today and which products best match your retirement goals.
Because we are independent, our recommendations are not tied to any specific company. Instead, we evaluate your needs—income planning, principal protection, legacy goals, liquidity preferences—and design a strategy that maximizes safety and long-term value.
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FAQs: What to Know Before Buying a Fixed Annuity
What is a fixed annuity?
A fixed annuity is a contract with an insurance company that offers a guaranteed interest rate for a specified period of time, along with principal protection. It is often used by retirees who want stable, predictable growth instead of stock market risk.
How is a fixed annuity different from a CD?
Both fixed annuities and CDs can offer guaranteed interest and principal protection, but a fixed annuity grows tax-deferred, while CD interest is generally taxed each year. In addition, fixed annuities are issued by insurance companies, can provide lifetime income options, and may offer more flexible payout strategies at the end of the term.
How long is the guarantee period on a fixed annuity?
Most fixed annuities guarantee a rate for three, five, seven, or ten years. Before you commit, confirm whether the rate is guaranteed for the entire period or only for an initial year with a different renewal rate afterward.
Can I access my money if I need it?
Most fixed annuities allow a portion of your value—often up to 10% per year—to be withdrawn without surrender charges, but the exact rules vary by contract. It is important to understand the free-withdrawal provisions, surrender schedule, and any penalties that apply if you take out more than the allowed amount.
What happens when the fixed annuity term ends?
When the guarantee period ends, you typically have several options: renew at a new rate, move the funds to another annuity, roll the money into an IRA if it is a qualified contract, or cash out without surrender charges. Some contracts automatically renew if you do not act, so it is important to review your options ahead of time.
Are fixed annuities safe?
Fixed annuities are backed by the financial strength of the issuing insurance company. While they are not bank products or FDIC insured, they are designed to protect principal and provide guaranteed interest. Evaluating the insurer’s ratings and stability is an important step before you buy.
How are fixed annuities taxed?
Fixed annuities grow tax-deferred, meaning you do not pay taxes on the interest each year. Instead, taxes are due when you take withdrawals, and gains are generally taxed as ordinary income. If the annuity is inside an IRA or other qualified plan, distributions follow the usual retirement-account tax rules.
Can a fixed annuity provide lifetime income?
Yes. You can convert a fixed annuity into a stream of income payments you cannot outlive, or pair it with an income-focused annuity strategy. Many retirees use fixed annuities alongside Social Security to create a stable, guaranteed income foundation in retirement.
Is there a minimum amount required to buy a fixed annuity?
Minimums vary by carrier and product, but many fixed annuities require an initial premium of $10,000 to $25,000 or more. Some contracts allow larger deposits or additional premiums during a specified time window.
How do I compare fixed annuity rates and features?
The best way to compare options is to review current fixed annuity rates, guarantee periods, withdrawal provisions, and insurer strength side by side. Many retirees also look at bonus annuities and income-focused strategies in the same process. You can start by reviewing current rates and then requesting a personalized comparison.
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.
