The two annuity types that come up most often in conversations with people near retirement are fixed annuities and fixed indexed annuities (FIAs).
They sound similar. They're both "fixed." But they work quite differently. Let me break it down.
Fixed annuities (including MYGAs)
- You receive a declared interest rate for a set period — say, 3% for 5 years.
- Your rate doesn't change during that period, regardless of what the market does.
- Very predictable. You know exactly what your account value is at any given time.
- Works well for people who want stability and don't want to think about market performance at all.
Fixed indexed annuities (FIAs)
- Your growth potential is linked to a market index (like the S&P 500), but you don't actually own stocks.
- If the index goes up, you receive a portion of that growth — subject to caps, participation rates, or spreads that the carrier sets.
- If the index goes down, you don't lose principal. Your floor is typically 0% in a bad year.
- Works well for people who want some upside potential but can't afford to lose what they've already accumulated.
The trade-off
Fixed annuities offer certainty. You know the rate. FIAs offer potential. You might earn more in a good year, but you could also earn 0% in a flat or down year (though your principal is not directly exposed to market losses, subject to contract terms).
Neither is "better" in an absolute sense. The right choice depends on your timeline, your risk comfort, and what role this money plays in your overall plan.
A real-world way to think about it
Imagine you have $200,000 you'd like to set aside for retirement income. You might put $100,000 into a fixed annuity for the certainty, and $100,000 into an FIA for the growth potential. That way you get predictability on one side and opportunity on the other.
That's just one approach. There are many. The key is matching the product to the purpose.
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Author of Indexed Annuity Secrets and founder of Pacific Ridgeway Insurance Solutions in San Diego. Navy veteran. Licensed financial professional, CA #4132743.
Fixed indexed annuities are insurance products, not investments. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. This article is for educational purposes only and is not financial, investment, tax, or insurance advice.