Fixed Indexed Annuities: Why Retirees Choose Growth With Protection
Record sales reflect demand for a product that credits interest linked to the stock market while protecting principal when the market falls.
By Veritas Aegis Financial
SCHAUMBURG, Ill. (Nov. 6, 2026) — For retirees and people approaching retirement, the biggest financial threat is often not missing out on the next bull market. It is a steep loss at the wrong time.
That concern is driving demand for fixed indexed annuities, known as FIAs. Americans bought a record $127.9 billion of the contracts in 2025, the fifth straight year of growth, according to LIMRA, the insurance industry research group.
Indexed products made up 45% of all annuity sales in 2025, up from 24% a decade earlier, according to LIMRA. The group expects indexed sales to keep growing "as investors seek downside protections coupled with investment growth potential," according to its 2026 outlook.
Much of the criticism aimed at annuities targets variable annuities, which hold market investments, can lose value and often carry layers of fees. A fixed indexed annuity is a different product built for a different purpose.
What is a fixed indexed annuity?
A fixed indexed annuity is a contract with an insurance company. It earns interest based in part on the performance of a market index, such as the S&P 500, over a set period, such as one year, according to Investor.gov, the Securities and Exchange Commission's investor education site.
The owner does not invest directly in the stock market. Instead, the insurer uses a formula to decide how much interest to credit, according to a draft revision of the NAIC Annuity Buyer's Guide under review by the National Association of Insurance Commissioners. The draft describes an FIA as "an insurance product, not an investment," adding that "an insurance product is designed to transfer risk away from you."
Why fixed indexed annuities appeal to retirees
1. Market losses don't reduce the account
The defining feature is the floor. Fixed indexed annuities have a 0% floor, meaning the account won't lose value when the market index goes down, according to the NAIC draft guide.
In a down year, the owner may be credited zero interest, but the market decline itself does not reduce the contract value.
This matters most just before and early in retirement. A large loss in those years, when withdrawals are beginning, can be difficult to recover from. An FIA removes market losses from the equation for the money placed in it.
2. Gains are locked in
Interest credited to an FIA becomes part of the contract value. Credited interest is locked in and cannot be lost if the market later falls, according to Athene, one of the country's largest FIA issuers.
That creates a ratchet effect: The account can move up or stay level because of index performance, but market downturns do not erase prior growth.
3. More growth potential than traditional fixed products
Because interest is linked to an index, FIAs may have the potential to earn more than a traditional fixed annuity, according to industry comments filed on the NAIC buyer's guide revision.
The Financial Industry Regulatory Authority places indexed annuities between the two other main types: more risk and more return potential than a fixed annuity, but less risk and less return potential than a variable annuity, according to FINRA.
4. A potential alternative to part of a bond allocation
Bonds can lose value when interest rates rise. An FIA's contract value does not drop because of rate increases or index losses.
Economist Roger Ibbotson, known for his long-running research on stocks, bonds, bills and inflation, studied hypothetical FIA returns from 1927 through 2016. A simulated FIA tied to a large-company stock index produced bond-like volatility, a higher annualized return than long-term government bonds and no negative rolling three-year periods, according to Kiplinger.
The study found a simulated annualized return of 5.81% for the FIA, net of fees, compared with 5.32% for long-term government bonds, according to the Annuity Association. The results were hypothetical, and when bond returns were above their median, adding FIAs slightly lowered portfolio returns, the same summary noted.
5. Tax-deferred growth
Interest earned inside an annuity is not taxed until it is withdrawn, and nonqualified annuities have no annual contribution limits like those on IRAs and 401(k) plans, according to FINRA.
Deferral lets interest compound on money that would otherwise go to taxes each year. For high earners who already contribute the maximum to workplace plans, that can be a meaningful advantage.
6. An option for lifetime income
An FIA can grow during the accumulation years and later be converted into income. Many contracts also offer optional income riders that guarantee withdrawals for life, usually for an added annual fee.
Product innovation, including custom indexes, more flexible crediting methods and improved income riders, has helped FIA sales grow more than 137% since 2015, according to LIMRA.
7. Simpler cost structure than variable annuities
A basic FIA without optional riders generally does not carry the separate annual mortality and expense charges and investment-fund fees found in variable annuities. The Securities and Exchange Commission says variable annuity mortality and expense charges are often about 1.25% of account value per year, before other fees, according to an SEC investor bulletin.
With an FIA, the insurer's cost of providing protection is mainly reflected in limits on how much index growth is credited, rather than in a list of deductions from the account. Optional riders do add fees, which should be disclosed in the contract.
The trade-offs to understand
Protection has a price, and a strong FIA recommendation should explain it clearly.
Upside is limited. Crediting formulas may use caps, participation rates or spreads, according to the SEC's indexed annuity bulletin. With a 7% cap and a 12% index gain, for example, only 7% would be credited. Index calculations also generally exclude dividends.
Money is committed for years. Surrender charge periods for FIAs typically range from 7 to 10 years, according to the NAIC draft guide. Most contracts allow a limited penalty-free withdrawal each year, but larger early withdrawals can reduce the amount received, including principal.
Rates can change. Caps and participation rates may be adjusted after the initial guarantee period, subject to contract minimums. FIA sales dipped in the first half of 2026 partly because average cap rates were slightly lower than a year earlier, according to LIMRA.
Taxes still apply. Gains are taxed as ordinary income when withdrawn, and withdrawals before age 59½ may face a 10% federal tax penalty, according to FINRA.
Guarantees depend on the insurer. Contract guarantees are backed by the financial strength and claims-paying ability of the issuing company, so the insurer's ratings matter.
Who a fixed indexed annuity may fit
An FIA may be worth considering for someone who:
Is within about 10 years of retirement or already retired.
Wants protection from market losses on a portion of savings.
Wants more growth potential than a traditional fixed annuity or a certificate of deposit.
Has adequate emergency savings and other liquid assets outside the contract.
Can leave the money in place through the surrender period.
Wants the option of guaranteed lifetime income later.
It may be a poor fit for someone who needs the money in the near term or wants full stock market returns and is comfortable with losses.
Questions to ask before buying
The NAIC's draft guide and industry comments recommend that buyers ask:
How is interest calculated, and what are the cap, participation rate or spread?
How long are those rates guaranteed, and what are the contract minimums?
How long is the surrender period, and how much can be withdrawn each year without a charge?
What does an income rider cost, and what does it guarantee?
What in the illustration is guaranteed, and what is hypothetical?
Buyers should also ask about the free-look period, which allows a new owner to cancel the contract within a set number of days after delivery.
The bottom line
A fixed indexed annuity is not designed to beat the stock market. It is designed to let retirees participate in part of the market's gains while transferring the risk of market losses to an insurance company.
For people who value certainty for a portion of their retirement savings, that trade — limited upside in exchange for a 0% floor, locked-in gains, tax deferral and income options — is why record numbers of Americans are choosing FIAs.
This article is for educational purposes only and is not individual tax, legal or investment advice. A fixed indexed annuity is an insurance contract and is not a direct investment in the stock market or any index. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Surrender charges may apply to early withdrawals, and withdrawals before age 59½ may be subject to a 10% federal tax penalty. Optional riders are available for an additional cost. Hypothetical and historical results do not guarantee future performance. Consult a licensed professional about your circumstances.
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