Fixed Annuities for Retirement: Guaranteed Income for an Uncertain Future

Many retirees are terrified of running out of money. It’s an understandable fear: nobody knows how long their retirement will last, making it impossible to know exactly how much money they’ll need. To solve this problem, some people are turning to fixed annuities for retirement income. Before you decide whether to invest in such a product, find out if it’s the right guaranteed retirement income option for you.

Planning for an Uncertain Future

The CDC says the average life expectancy in the U.S. is 77.5 years. Women tend to live longer than men, meaning the average life expectancy is 80.2 years for women and 74.8 years for men.

Let’s say you’re trying to calculate how much you need to save for retirement. You plan to retire at 65 and determine that you’ll need $50,000 a year to maintain your lifestyle and cover your expected healthcare costs. If you live to 80 – about average for a woman – you’ll have 15 years of retirement, meaning you’ll need $750,000. You want a little extra to allow for inflation and unexpected costs, so, all in, you think you should be safe with $1 million.

There’s one problem: you’re not a statistic. You could end up living well past 80. If you make it to 95, you’ll need twice as much as you’ve budgeted.

According to AP News, the oldest person alive as of January 5, 2025, is nearly 117!

Secure Investment Options for Retirement Income

A long life should be something to celebrate. However, when calculating how much money a person will need to retire, the uncertainty around longevity becomes a grave concern.

A continued source of income can help alleviate the worry. During a person’s working years, the next paycheck is usually only two weeks away. Even if money is tight, financial relief will be available soon. Having reliable income during retirement provides a similar safety net and is appealing to many retirees.

There are a few ways to secure retirement income, including:

• A retirement plan through your employer. In a monthly pension (sometimes called a defined benefit retirement plan), the person’s former employer pays a regular income for the duration of the person's retirement. Unfortunately, pensions have all but disappeared. According to the U.S. Bureau of Labor Statistics, only 15% of private industry workers still have access to pensions. Many employers now offer 401(k) plans, IRAs and other types defined contribution plans. Workers who don't have access to employer-sponsored retirement plans can also use some of these options, including IRAs. These plans typically have many advantages, such as portability, but they can lose value if the investments perform poorly, and it’s possible to outlive your savings. 

• Social Security retirement benefits. For most retirees, Social Security benefits aren’t enough on their own. According to the Social Security Administration, the average retirement benefit is $1,976 a month, as of January 2025. That’s only $23,712 a year. Furthermore, a Bankrate survey found that 73% of workers are worried that the Social Security benefits they’re owed won’t be paid upon retirement age due to governmental budget cuts.

• Annuities. An annuity is a financial contract between you and an insurance company  that allows you to pay a premium and then enjoy tax-deferred growth. When you annuitize your annuity, you convert it into periodic payments, which produce an income stream. There are different types of annuities, which vary significantly in terms of how you fund them, how the value grows, and when and how you receive  payments. Fixed annuities grow at a fixed interest rate and provide guaranteed payments for a period of time or for the rest of someone’s life.

Fixed and Variable Annuities: Understanding the Differences

Risk tolerance varies between individuals. Some people are happy to pour their money into volatile stocks and cryptocurrencies, hoping these investments will skyrocket but knowing they might lose value. Other people prefer to collect a modest but guaranteed interest rate.

As people retire, their risk tolerance often lessens. They want a secure retirement and they can’t imagine trying to rebuild their wealth from scratch again.

Annuities may be a good option for a secure investment option for retirement – but some annuities are riskier than others:

• Variable annuities are affected by market performance. If the market performs well, your investment may grow quickly and you may receive larger payouts. However, if the market performs poorly, your investment may shrink and this market volatility will negatively impact your payments.

• Fixed annuities got their name because they have a crediting rate that will never go below zero. In many cases, you can select a fixed rate that is much higher for a predetermined period of time. When you annuitize a fixed annuity, your payments are set for the period of time you choose. Regardless of how the market performs, you can rest easy, knowing that your annuity is still accumulating wealth for you as it grows and that when you decide to annuitize, you will receive the payouts you expect.

Mitigating Risks with Fixed Annuities for Retirement Income

Fixed annuities are a relatively low-risk investment option for guaranteed retirement income. However, even safe investments carry some risks – and some fixed annuities are riskier than others. There are a few things to consider when comparing fixed annuities:

• The financial strength of the company. Like many other investment products, annuities are not FDIC insured, although states do typically have some rules in place to protect policyholders. It’s important to buy annuities from financially-sound insurance companies.

• The fees. Some annuities have annual fees and other hidden costs that add up. Check that the annuity company has no hidden fees. (Fees are more common on variable annuities)

• The surrender charges. Annuities are not meant to be short term options and you may encounter fees if you try to surrender your annuity before the end of the surrender charge period. Make sure you understand the surrender charge period and are aware of any amounts you can withdrawal during the surrender charge penalty without a surrender charge if you need to.

• Early withdrawal costs. You may face a tax penalty from the IRS if you make withdrawals before you turn 59.5.

Should You Consider a Fixed Annuity for Retirement Income?

Many people are turning to fixed annuities for a reliable source of retirement income. However, an  annuity may not be a good fit for everyone. Before you buy an annuity, ask yourself the following questions. Do you:

• Need a guaranteed retirement income source? Some people have other options, such as an employer-provided pension. However, if you need more retirement income, a fixed annuity could be worthwhile.

• Want your money to earn a guaranteed interest rate? Investment options tied to the market are volatile. Some years, they may perform well, but their value may plummet in other years. A fixed annuity provides a predetermined interest rate, meaning you don’t need to worry about what the market is doing.

• Have the money to fund an annuity? Depending on the option you choose, you could fund an annuity with as little as $2,500 or $5,000.

Do You Want an Annuity with a Guaranteed Interest Rate?

Are you interested in securing an annuity for guaranteed retirement income? Canvas offers two fixed annuity options. We are owned by Puritan Life insurance, which has a 65-year history and a B++ rating from AM Best. Learn more about our fixed annuity options.