What Is a Fixed Annuity and Is It Right for You?

For many people, the appeal of a fixed annuity is predictable retirement income. In a 2026 Mutual of Omaha Annuities Study, 85% of adults said it was important that at least some of their retirement income continue regardless of what happens in the financial markets.* Still, a fixed annuity isn’t one-size-fits-all. Understanding details like interest rates, fees, tax treatment and income options can help you determine how it may fit into your broader retirement income plan.

Key takeaways

• A fixed annuity is a financial product offered by an insurance company that provides steady, predictable income payments, either now or in the future.

• Fixed annuities are commonly used in retirement planning to add stability to income or savings.

• Immediate fixed annuities can begin income payments soon after purchase, while deferred fixed annuities allow funds to grow at a set rate before payouts begin.

• Fixed annuities may offer tax-deferred growth, but withdrawals and income payments can have tax implications.

• A fixed annuity may not be a good fit if you need quick access to your money or want higher growth potential from investments tied to stock market performance.

How does a fixed annuity work?

A fixed annuity works by helping turn money you set aside today into future income for retirement, depending on the type of annuity you choose. In general, it operates across two stages: the accumulation stage and the income stage.

• During the accumulation stage, you pay money into the annuity. The balance earns interest based on the terms of your contract. This interest rate may be set for one year, several years or a longer period, depending on the annuity structure.

• During the income stage, you start receiving payments. Those payments can last for a set number of years, for your lifetime or for the lifetime of you and another person, like a spouse, depending on the payout option selected.

Nate DeBoer, vice president and actuary at Mutual of Omaha, describes the income stage as a key phase of retirement. “At some point you flip into what’s called the deaccumulation phase. You need to turn that retirement savings into income.”

That shift from saving to taking income is where a fixed annuity can play a key role. It can help add a more predictable income source to a broader retirement plan, alongside Social Security, pensions, personal savings and active investments.

What retirement risks can a fixed annuity help address?

A fixed annuity can help address certain retirement planning concerns, but it does not remove every financial risk.

It is important to understand what “guaranteed” means when reviewing a fixed annuity. Fixed annuities may include contractual guarantees, but those guarantees are backed by the claims-paying ability of the issuing insurance company. That’s why the company behind the annuity matters.

Mutual of Omaha takes a disciplined, fiscally conservative approach to managing long-term commitments to policyholders. When comparing annuity providers, it is important to review the company’s financial strength, investment strategy, liquidity and third-party ratings.

Types of fixed annuities

Fixed annuities are generally used when someone wants part of their money to grow with a more predictable interest-crediting approach and less direct exposure to market changes. They are often considered accumulation products, meaning the focus is typically on principal protection and growth potential before income begins.

Income may be available later, depending on the terms, but that is different from an immediate income annuity, which is designed primarily to create regular income payments right away.

It’s helpful to understand that income annuities are a separate category. They are generally designed to turn a lump sum into regular income payments either soon after purchase or at a specific future date.

Why might someone choose a fixed annuity?

Someone might choose a fixed annuity because they want part of their retirement savings to be highly predictable. This often becomes a priority as people move closer to retirement and begin thinking less about maximizing asset growth and more about how those assets can safely support day-to-day income.

Keith Lo, annuity product director at Mutual of Omaha explains, “When you actually retire, having a plan for a reliable income stream that lasts throughout your retirement becomes very important.” For many people, that relates to everyday expenses: 92% of adults say it would be useful to know their basic living expenses could be accounted for as long as they live.*

 A fixed annuity can appeal to someone who wants to:

• Reduce exposure to market swings for part of their savings

• Create a more predictable future income stream

• Grow money tax deferred before taking income distributions

• Add another income source alongside Social Security, pensions, savings or investments

• Plan for the possibility of a long retirement

Fixed annuity benefits

Fixed annuities can offer several potential advantages, depending on the specific contract type.

Predictable interest

With a fixed annuity, the interest rate is based on a specific set of contract terms. This offers more stability than market-based investments since a fixed annuity isn’t designed to rise and fall with daily market changes.

Tax-deferred growth

Tax treatment is another area where fixed annuities work differently than traditional taxable savings or investment accounts.

DeBoer explains, “As an annuity, any gains are tax-deferred. This means taxes are generally delayed until you receive income payments or take withdrawals.”

Income payments

Some annuities can be structured to provide predictable income payments for life or for a specified limited period. For many retirees, that structural predictability is the primary reason to consider an annuity.

Support for longevity planning

No one knows exactly how long retirement will last. Lo describes the challenge clearly: “Someone might think they have a 20- or 25-year retirement, and it ends up being a lot longer.”

That variance can make income planning difficult, especially when someone is trying to balance savings, Social Security, active investments, taxes and unpredictable healthcare costs. A fixed annuity may help address that concern when it includes predictable, lifetime income features.

A simpler role for part of your plan

Retirement planning can involve coordinating multiple accounts, income sources and choices. 25% of adults said they don’t mind managing multiple accounts, but having fewer accounts would make things easier.*

A fixed annuity does not remove the need to review your financial plan, but it can help create a more defined hands-off role for part of your money. For some people, that role is earning predictable interest; for others, it is generating structured income later in retirement.

What are the trade-offs of a fixed annuity?

One trade-off of a fixed annuity is that you give up some flexibility in exchange for more predictability, as it is a long-term financial product.

Additionally, a fixed annuity carries structural trade-offs if you withdraw funds early. DeBoer cautions, “Don’t expect these to be like your checking account. If you need money during the accumulation period, you usually have to pay a penalty called a surrender charge.”

Common trade-offs include:

• Limited access to money during the surrender charge period

• Lower growth potential than some market-based investments

• Possible tax penalties for early withdrawals before age 59½

• Inflation risk if income or interest does not keep up with rising costs

• Administration fees or optional riders, depending on the type of annuity

Evaluating if a fixed annuity is right for you

Who should consider a fixed annuity

A fixed annuity can be a good fit for someone who has already built savings and wants to help protect part of that money to support future income or predictable growth.

It generally fits someone who:

• Is approaching retirement or is already retired

• Has savings they do not need to access right away

• Wants more predictability around their income plan

• Has a lower tolerance for market risk

• Wants to explore tax-deferred growth

• Is looking at how several income streams could work together in a retirement income plan

Choosing an annuity is personal. A fixed annuity should be evaluated with an insurance professional based on income needs, liquidity preferences, risk tolerance, tax preferences and overall goals.

DeBoer recommends evaluating all sources of retirement income, including pensions, Social Security and investment returns, then comparing that total with your expected expenses. As he explains, the goal is to “look at whether there’s a gap in your retirement plan and see how an annuity might fit within it.”

Who my not be a good fit for a fixed annuity

A fixed annuity may not fit someone who needs quick access to most of their money or who requires more flexibility than the standard terms allow.

Before buying an annuity, ask whether you can afford to set aside money for many years, whether you will have enough left over for an emergency fund and whether you can cover long-term care or other healthcare needs.²

A fixed annuity may not be the best fit if you:

• Need regular access to the money you would put into the annuity

• Prefer investments with higher growth potential, even if that means tolerating higher market risk

• Want fewer restrictions around withdrawals or surrender charge periods

• Have not compared how the annuity fits with your other retirement income sources

Lo adds, “If someone has immediate liquidity needs, there just might be something simpler, like a bank account, to fill that need.”

Is a fixed annuity a good investment?

A fixed annuity can be a good fit when it helps address a specific retirement milestone, such as adding more predictable growth, creating future income or reducing exposure to market swings for a portion of your savings.

The key is to “ask how this fits into your overall retirement plan,” DeBoer puts simply. Consider how the annuity would work alongside Social Security, pensions, savings and investments; how much money you need to keep liquid; and whether an annuity aligns with your goals. 

A Mutual of Omaha insurance professional can help you evaluate how different options work together.

Frequently asked questions (FAQs) about fixed annuities

Should a 70-year-old buy an annuity?

A 70-year-old might consider an annuity if it fits their income needs, liquidity needs and broader retirement plan. Age alone should not determine the decision. The bigger question is whether the annuity supports their income goals while leaving enough accessible money for everyday expenses, emergencies and healthcare costs.

Does annuity income affect SSDI?

Annuity income generally is not treated the same as active work earnings for Social Security Disability Insurance (SSDI). However, disability benefit rules vary based on the specific type of program. Supplemental Security Income (SSI) is strictly needs-based, so annuity income may affect eligibility or payment amounts.

What is the 4% rule for annuities?

The 4% rule is not an annuity rule. It is a retirement withdrawal guideline used to estimate how much someone may withdraw from an investment portfolio each year, without running out of money. Conversely, annuity payments are contractual and are calculated based on the terms, payout option and type of annuity purchased.

Fixed annuity vs. CD: What’s the Difference?

As DeBoer explains, “A multi-year guaranteed annuity is kind of like a certificate of deposit (CD), where the insurance carrier is giving you a fixed crediting rate for some specified term.”

The difference is that a CD is issued by a bank or credit union and is typically used for shorter-term savings. A fixed annuity is issued by an insurance company and may offer tax-deferred growth or lifetime income options for longer-term retirement planning.

Are fixed annuities guaranteed?

Fixed annuities may include contractual guarantees, such as a minimum interest rate or income payment options. These guarantees depend on the insurance company’s financial strength and ability to meet its claims-paying obligations.

Disclosures:

Annuity guarantees are backed by the claims-paying ability of the issuer.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

Sources:

*Mutual of Omaha Annuities Study. Mutual of Omaha worked with research vendor quantilope to conduct a 5-minute online survey of 400 consumers age 45+ with a stated household income of $50,000 or more per year. Research was conducted April 22-28, 2026. All study data cited in this article is based on Mutual of Omaha proprietary research unless otherwise noted.

1. Internal Revenue Service. (2025, August 26). Annuities — A brief description. https://www.irs.gov/retirement-plans/annuities-a-brief-description

2. California Department of Insurance. (n.d.). Annuities: What seniors need to know. https://www.insurance.ca.gov/0150-seniors/0600informationguides/seniorannuitiesguide.cfm

3. Internal Revenue Service. (2025). Publication 575: Pension and annuity income. https://www.irs.gov/publications/p575

4. Internal Revenue Service. (2026, February 24). Topic no. 410: Pensions and annuities. https://www.irs.gov/taxtopics/tc410

5. Social Security Administration. (2026). Substantial gainful activity. https://www.ssa.gov/oact/cola/sga.html

6. Social Security Administration. (2025). 2025 annual report of the SSI program: III. The Supplemental Security Income Program. https://www.ssa.gov/OACT/ssir/SSI25/III_ProgramDescription.html