Posted on January 6th, 2026.

 

As retirement gets closer, it is natural to start thinking less about growth and more about stability. Market ups and downs that once felt manageable can seem much less comfortable when you are getting ready to live on your savings.

That is where fixed annuities often enter the conversation, because they focus less on chasing returns and more on providing a predictable stream of income.

At a basic level, a fixed annuity is a contract with an insurance company. You deposit a lump sum or make a series of payments, and in return the company promises a guaranteed interest rate for a set period and, if you choose, a future income stream. 

In this blog post, we explore how fixed annuity rates work, the key benefits, how they compare to certificates of deposit (CDs), and what to know about withdrawals and surrender charges. 

 

Fixed Annuity Rates and Benefits

Fixed annuity rates sit at the heart of how these products support steady income in retirement. When you buy a fixed annuity, the insurer credits your account with a guaranteed interest rate for a specific period, often three, five, or ten years. During that time, your rate will not change, regardless of what the stock market or general interest rates do. For conservative investors or retirees, that certainty can be reassuring, especially after years of living through market swings.

Many fixed annuities offer a multi-year guaranteed rate, sometimes called a MYGA, which locks in your interest for the full guarantee period. Others provide an initial guarantee and then adjust the rate annually based on the insurer’s current offerings. When you evaluate the best fixed annuity for retirees, it helps to look beyond the headline rate and ask how long it is guaranteed, how renewal rates are set, and whether there are minimums built into the contract. A slightly lower rate with a longer guarantee may be more useful than a higher rate that resets quickly.

One of the main benefits of a fixed annuity is principal protection. As long as you stay within the contract rules and the insurer remains financially sound, your original premium and credited interest are protected from market loss. That means a down year in the stock market will not reduce your annuity value. For retirees who cannot afford to see their income base shrink late in life, this protection can be very valuable. It is similar in spirit to a CD or savings account, but often with higher rates and longer terms.

Fixed annuities also grow on a tax-deferred basis. You do not pay income tax on the interest each year as you would with a taxable CD or savings account. Instead, taxes are due when you take withdrawals. For someone who does not need the income right away, that can allow the account to compound more efficiently. Later, when you begin taking distributions, you can coordinate those withdrawals with your broader tax picture and other income sources.

Another important advantage is the ability to turn a fixed annuity into a predictable income stream. Many contracts allow you to “annuitize,” which means converting the account value into a series of guaranteed payments for a set period or for life. Lifetime income options are especially attractive if you are concerned about outliving your savings, because they continue as long as you live, even if the underlying account value has been paid out. 

Choosing the best fixed annuity for retirees is ultimately about fit, not just rate. You will want to consider the insurer’s financial strength, the length of the guarantee period, liquidity features, and whether a lifetime income option matches your needs. It also helps to think about how the annuity will work alongside Social Security, pensions, and other savings. When those pieces support each other, a fixed annuity can become a stable foundation in a broader strategy.

 

Fixed Annuities versus Certificates of Deposit (CDs)

Fixed annuities and certificates of deposit often appeal to the same type of investor: someone who values safety and predictability. Both products protect principal when used as intended, and both pay a stated interest rate for a certain period. However, once you look more closely at how each one works in retirement, some important differences emerge, especially around taxes, income options, and long-term planning.

In the discussion about choosing between a fixed annuity or CD, interest rates are usually one of the first comparisons people make:

• CDs can offer attractive short-term rates, especially at promotional times, but those rates only apply for the CD’s term. When it matures, you must reinvest at whatever rates are available then.
• Fixed annuities, on the other hand, often offer multi-year guarantees that can be longer than typical CD terms. They also provide tax-deferred growth, while CD interest is generally taxed each year, even if you do not withdraw it. Over time, that tax deferral can improve net results.

Liquidity and penalties are another area to consider. Both CDs and fixed annuities charge penalties for early access, but the details differ. Banks typically impose an interest penalty if you cash out a CD before maturity, which may reduce your return but not usually your principal. Fixed annuities have surrender periods, often five to ten years, during which withdrawals above any free amount trigger surrender charges. On the positive side, many annuities allow a 10 percent penalty-free withdrawal each year, and some include special provisions for nursing home stays or terminal illness.

Where fixed annuities really differentiate themselves from CDs is in addressing longevity risk. A CD simply pays interest until maturity, then returns your principal. It does not offer a built-in way to create guaranteed lifetime income. A fixed annuity, by contrast, can be structured to pay you every month for as long as you live. For someone who wants a portion of their retirement income to be guaranteed regardless of lifespan, this feature can be very reassuring.

Of course, that does not mean CDs have no place. For short-term goals or emergency reserves, they can be very useful because the terms are often shorter and the structure is familiar. CDs might be a good fit for money you expect to need in one to three years, while a fixed annuity is often better suited to longer-term retirement income planning. Using both thoughtfully can give you a mix of flexibility and stability.

Deciding which is better, a fixed annuity or a CD, depends on your timeline, tax situation, and need for income. If your main goal is to preserve cash for near-term spending, a CD may make sense. If you are structuring income for the next 10, 20, or even 30 years, a fixed annuity can add features that CDs simply do not have. Taking time to compare both, side by side, and to see how they fit with your entire portfolio helps you make a decision that supports your long-term security.

 

Navigating Withdrawals, Surrender Charges, and Penalties

Fixed annuities are designed to be long-term tools, so it is important to understand how withdrawals work before you commit. Most contracts include specific fixed annuity withdrawal rules that allow you to access a portion of your money each year without surrender charges, often up to 10 percent of the account value. This feature gives you some flexibility for unexpected expenses or supplemental income while still preserving the contract’s long-term structure.

If you withdraw more than the free amount during the surrender period, surrender charges usually apply. The surrender period is a set number of years, often ranging from five to ten, during which these charges gradually decline. For example, the fee might start at 7 percent in year one and drop by one percentage point each year until it reaches zero. Understanding this schedule is essential, because large withdrawals early on can significantly reduce what you receive.

In addition to insurer surrender charges, the IRS imposes its own rules. Withdrawals from a non-qualified fixed annuity (one funded with after-tax dollars) are taxed on a last-in, first-out basis, meaning interest comes out before principal and is taxed as ordinary income.

If you are under age 59½, a 10 percent federal penalty may apply to the taxable portion of withdrawals. For annuities held inside IRAs or other retirement accounts, standard retirement account rules and penalties apply. Knowing how these layers interact helps you avoid unpleasant surprises.

Many retirees also need to coordinate annuity withdrawals with required minimum distributions (RMDs) if the annuity is held inside a traditional IRA or similar account. Some contracts are “RMD friendly,” meaning the insurer allows you to take out the required amount each year without triggering additional surrender charges, even if that amount is higher than the standard free withdrawal. 

To increase flexibility, some people use a fixed annuity ladder strategy. Instead of putting all their money into one contract, they divide it among several fixed annuities with different surrender periods or start dates. As each contract moves past its surrender period, that portion of the money becomes more accessible or can be used to buy a new annuity at current rates. This approach can reduce the impact of surrender charges and interest-rate changes over time while still providing the safety and predictability they want.

No matter how you structure it, the key to managing withdrawals, surrender charges, and penalties is to understand the contract before you sign. Read the illustrations, ask about free withdrawal provisions, and review any optional riders that may add flexibility, such as nursing home waivers or enhanced liquidity features.

Related: Planning for the Future: Life Insurance Tips for Millennials

 

Creating Confidence With Fixed Annuities

Parks Insurance Services in Richmond, Kentucky, focuses on helping seniors and pre-retirees understand fixed annuities, compare options, and see how they fit with Social Security, pensions, and other savings.

The goal is always the same: help you feel confident that your income will be there when you need it.

Ready to lock in predictable retirement income with a fixed annuity? Compare options and get personalized guidance with annuity solutions from us.

Reach out for personalized assistance via email at [email protected] or call us at (859) 408-7087.