How guaranteed income products work, and when they belong in a retirement plan.
An annuity is a contract between you and an insurance company. You contribute a lump sum or series of payments, and in return the insurer guarantees a stream of income — either immediately or beginning at a date you choose. Unlike stocks or mutual funds, a fixed or fixed-indexed annuity cannot lose principal due to market declines. That guarantee is what makes annuities uniquely powerful as a retirement tool.
The core promise of an annuity is simple: you cannot outlive the income it provides.
There are three primary types worth understanding before retirement. A fixed annuity offers a set interest rate for a defined period — predictable and simple. A fixed-indexed annuity ties growth potential to a market index while protecting against loss. A Multi-Year Guaranteed Annuity (MYGA) locks in a fixed rate for multiple years, functioning much like a CD inside an insurance wrapper. Each type serves a different purpose, and most retirement plans benefit from combining them strategically.
The single greatest risk in retirement is outliving your money. Social Security alone rarely covers all fixed expenses, and market volatility can erode a portfolio at the worst possible time. Annuities address both problems. By converting a portion of savings into a guaranteed income floor, you preserve flexibility for the rest of your portfolio. The best time to explore annuities is before you need them — options narrow and premiums rise as health changes.
