Best Annuities

An annuity is a financial contract between you and an insurance company. You make a lump-sum payment or series of payments, and in return, the insurer provides regular disbursements beginning either immediately or at some point in the future. Annuities are primarily used as a retirement income tool, and some can pay income for as long as you live. Every guarantee depends on the claims-paying ability of the issuing insurance company.

The annuities Annuity Atlas covers fall into three groups. Fixed annuities, including multi-year guaranteed annuities (MYGAs), credit a guaranteed interest rate for a set period. Fixed indexed annuities (FIAs) credit interest linked to a market index such as the S&P 500, with a 0% floor so index losses are not credited to your account. Income annuities turn a premium into a stream of payments. Annuities are also either immediate (payments begin right away) or deferred (payments begin at a future date). Variable annuities and registered index-linked annuities (RILAs) are securities that carry market risk; Annuity Atlas does not cover them.

A fixed indexed annuity is a type of annuity that earns interest based on the performance of a market index, such as the S&P 500, without directly investing in the market. When the index performs well, you earn interest up to a cap or participation rate. When the index declines, the interest credited for that period is zero rather than negative, so index losses are not subtracted from your account. Surrender charges, market value adjustments and optional rider fees can still reduce your account value, and the guarantees depend on the claims-paying ability of the issuing insurance company.

A Multi-Year Guaranteed Annuity (MYGA) is similar to a bank CD but issued by an insurance company. It pays a fixed, guaranteed interest rate for a specified period (typically 3, 5, 7, or 10 years). MYGA rates can be higher than bank CD rates, and earnings grow tax-deferred. They are one of the simplest annuity products available, suited to savers who want a guaranteed rate for a known period. Unlike a CD, a MYGA is not FDIC insured; its guarantee depends on the claims-paying ability of the issuing insurance company.

There is no single right age; it depends on your goals. For deferred income, buying between ages 50 and 60 allows time for the income base to grow before you need income. For immediate income, payout rates rise with the age at which payments start. MYGAs can be purchased across a wide range of ages for a guaranteed rate. Annuities are most often used by people within 10 to 15 years of retirement or already retired.