Are fixed indexed annuities a good idea for retirees?
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Short answer: A fixed indexed annuity can be a good idea for part of a retiree's savings when avoiding index losses matters more than full market growth, and the money can stay put through the surrender period. It's usually a poor fit for money you may need soon, or for someone who wants every dollar of market upside.
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Why so many people ask this
Search for fixed indexed annuities (FIAs) and you'll find two camps. One says they're a scam. The other says they're right for everyone. We think both miss the point. An FIA is a tool with a clear trade, and whether it's a good idea depends on what you need the money to do.
What you get
- A 0% floor on index crediting. Your interest is linked to a market index, but your money isn't invested in the market. In a down year your index credit is 0%, not a loss. The SEC's Investor.gov annuities page says the rate is guaranteed never to be less than zero, even if the market goes down. That guarantee is backed by the issuing insurer's claims-paying ability, and rider fees or surrender charges can still reduce your account value.
- Tax deferral. You don't pay income tax on credited interest until you take money out. The NAIC Buyer's Guide notes this is tax-deferred, not tax-free.
- Optional lifetime income. Many FIAs offer an income rider, usually for an annual fee, that can pay you for life under the rider's terms, subject to the insurer's claims-paying ability.
What you give up
- Part of the upside. Caps, participation rates and spreads limit how much of an index gain you're credited. Most strategies track a price index, so dividends are left out, according to the SEC's Investor Bulletin on indexed annuities.
- Easy access. The same bulletin says surrender periods typically last six to ten years, or even longer. Most contracts let you take a free-withdrawal amount each year. Above that, a surrender charge applies.
- Simplicity. Morningstar's John Rekenthaler puts it well: "if you have seen one indexed annuity, you have seen … one indexed annuity." Two contracts on the same index can credit very different amounts.
- Fees on riders. An income rider's annual fee comes out of your account value in up and down years.
- Changing terms. FINRA's indexed annuities insight warns that some contracts let the insurer change fees, participation rates and caps from time to time, which could lower your return.
Example: the index rises 12% and your cap is 8%, so you're credited 8%. The next year the index falls 15%, and your index credit is 0%. Over those two years, you were credited 8% instead of 12% in the up year, and 0% instead of a 15% loss in the down year. In a long run of strong years, the gap in upside adds up.
Who it tends to fit
An FIA tends to fit someone near or in retirement who wants part of their savings protected from index losses, can leave that money alone for the surrender period, and may want lifetime income later. It usually doesn't fit emergency money, money for a big purchase in the next few years, or someone who's comfortable riding out market drops for full growth.
How it compares with a MYGA and a CD
If you don't need any market link at all, a MYGA (a fixed-rate annuity for a set term) or a bank CD may be simpler comparisons. A CD is FDIC insured within limits. Annuities aren't. FIA and MYGA guarantees depend on the issuing insurer's claims-paying ability. See MYGA vs CD for the fixed-rate side.
Questions worth asking
- What job is this money supposed to do: growth, protection or income?
- What's the cap, participation rate or spread, and what's the guaranteed minimum?
- How long is the surrender period, and how much can I take out each year free?
- What's the issuing insurer's financial strength rating?
- How are you paid for recommending this?
Plain-English FAQ
Are fixed indexed annuities a scam?
No. They're state-regulated insurance contracts. They can be oversold, though, so make sure you understand the caps, surrender period and fees before you buy, and ask how the person recommending one is paid.
Will an FIA beat the stock market?
Don't expect it to in strong years. Caps, participation rates and spreads limit your credit, and dividends usually aren't included. What you get in return is a 0% index credit in down years instead of a loss. Rider fees, surrender charges and market value adjustments can still reduce your account value.
How much of my savings should go into an FIA?
There's no single right percentage. Keep money you may need soon somewhere you can reach it, and only use money you can leave in place through the surrender period. That depends on your income, other savings and goals.
Is a fixed indexed annuity FDIC insured?
No. Annuities aren't FDIC insured. Guarantees depend on the issuing insurer's claims-paying ability, so ask for the insurer's financial strength rating.
Ready for your number?
Every contract has its own caps, fees and surrender schedule, so the general rules on this page only go so far. You can get a free one-minute income quote at quote.garycosby.com, and if you choose, talk with one of our licensed agents about how a specific contract works. It's your money and your decision.
More guides
- What is a fixed indexed annuity?
- Can you lose money in a fixed indexed annuity? The 0% floor
- MYGA vs CD (fixed-rate comparison)
Sources
- SEC Investor.gov, "Annuities" (page date not shown; checked October 23, 2026). https://www.investor.gov/introduction-investing/investing-basics/investment-products/annuities
- SEC Office of Investor Education and Advocacy, "Updated Investor Bulletin: Indexed Annuities" (July 31, 2020; checked October 23, 2026). https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-investor-bulletin-indexed-annuities
- Morningstar, John Rekenthaler, "What to Know: Indexed Annuities" (date not shown; checked October 23, 2026). https://www.morningstar.com/columns/rekenthaler-report/what-know-indexed-annuities
- FINRA Investor Insights, "The Complicated Risks and Rewards of Indexed Annuities" (July 14, 2022; checked October 23, 2026). https://www.finra.org/investors/insights/complicated-risks-and-rewards-indexed-annuities
- NAIC, "Buyer's Guide for Deferred Annuities" (2022 edition; checked October 23, 2026). https://content.naic.org/sites/default/files/publication-anb-lp-consumer-annuities-fixed.pdf
All figures on this page come from the dated sources above. Dollar amounts and percentages labeled Example are illustrations, not rates, quotes or predictions.