Fixed Index Annuity: The Ultimate Guide for 2023

A fixed index annuity is a type of fixed annuity - that means you can not lose your money due to a potential market downturn.

What is a Fixed Index Annuity?

Instead of providing a guaranteed interest rate like a fixed annuity, an indexed annuity offers the potential to earn higher interest rates. There is a trade-off though; the only guarantee is that you will never be credited less than zero percent.

Shopping for a fixed index annuity may seem overwhelming but it doesn’t have to. You can compare today’s fixed index annuity rates here.

All annuity sales fall into one of three categories. The first thing you should do when considering a fixed index annuity is to decide what your objective is for this portion of your retirement savings. Is it:

Fixed Index Annuity Rates & Crediting method Cartoon Illustration

Video: Fixed Index Annuities Explained

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Fixed Index Annuity Buyers Guide

Fixed Index Annuities for Accumulation 

1. If you are shopping for an annuity designed for accumulation it is best to stick with shorter duration contracts; we typically recommend 5 or 7 years or a combination of the two.

2. If it sounds too good to be true it probably is. There are some fixed index annuities that show a hypothetical average annual rate of returns of 9.5% net. The S&P has averaged 9.3% over its history and that is with unlimited downside risk.

 Look at the inception date of the indexes inside of the index annuity. Most of the products that are trying to win a beauty contest with their hypotheticals are using indexes created within the last 12 months.

  • It is easy to create an index that backtests well over the last 10 years when you know exactly what happened over the last 10 years.
  • There is a difference between hypothetical backtesting and historical calculations. Historical means the index existed and hypothetical show return based on if the index actually existed.
  • I recommend selecting an indexed annuity that has a few competitive indexes and credit strategies. Each year on the contract anniversary new rates are determined and you have 30 days to re-allocate. If the cost of the option of your initial index increases during the contract year it is likely that your rates will be reduced. Multiple indexes hedge this risk as you can re-allocate to an option that is more favorable.
  • If an advisor tells you about a product he has been selling to all of his clients – don’t buy it – call me.

Fixed Index Annuities Designed for Lifetime Income

  • Don’t get caught up in the bells and whistles or smoke and mirrors. If you are shopping for an index annuity with a lifetime income rider the rollup rate, bonus, income value bonus, payout percent – none of them really matter.
  • You need to get an illustration ran specifically for you (and your spouse if you have one) using advanced annuity calculators.
  • The amount you should be most concerned with is the guaranteed lifetime income at the age you plan to begin monthly income payments. If you are not sure we can heat map the top payouts for the 5 years before and after your desired retirement age so you can select an annuity that is in the top 2 or 3 for all potential income begin dates.
  • Do you want a guaranteed lifetime income payment that begins higher, or, would you prefer a lower income initially with pay increases?

A fixed index annuity is a contract between you and an insurance company that may help you reach your long-term financial goals. In exchange for your premium payment, the insurance company provides you income, either starting immediately or at some time in the future.

NOTE: You may also hear of a fixed index annuity referred to as a:

  • FIA
  • Equity Indexed Annuity
  • EIA
  • Indexed Annuity
  • Hybrid Annuity
  • Index Annuity

What are the Advantages of a Fixed Index Annuity?

In plain English, a fixed index annuity provides the most upside-earning potential of any savings vehicle with principal protection. You can not lose your money in a fixed index annuity because it is a type of fixed annuity and your money is not invested directly in the stock market.

The primary benefits of an index annuity are:

Indexed annuities can help you build a source of guaranteed lifetime income, save for a specific retirement goal, or leave a legacy for your loved ones via an optional death benefit rider (life insurance provides better leverage if you are healthy).

Long-term care riders and benefits are also available and can leverage your annuity account value by 300% for long-term care expenses.

In addition, as stated in the PPA of 2006, any gain in a nonqualified annuity will come out tax-free if used for long-term care expenses. 

Pia chart showing benefits of index annuities

Tax Deferral

Under current federal income tax law, any interest earned in your fixed index annuity contract accumulates tax-deferred. You don’t have to pay income taxes on any of your gains until you begin withdrawing the funds from your contract. 

Withdrawals are taxed as ordinary income using the LIFO (last in first out) method and, if taken prior to age 59½, a 10% federal additional tax may apply.


The below chart shows how tax deferral can impact the value of an indexed annuity over time. The chart assumes a $100,000 index annuity grows at 4% compounded annually and compares the index annuity’s account value 20 years later with and without tax deferral. 

As you’ll notice the index annuity growing tax-deferred for 20 years has a value of $50,000 greater than a taxable investment.

Tax deferral example

Disclosure: This example assumes a 33% ordinary income tax assessed annually on taxable earnings and at the period ending on indexed annuity tax-deferred earnings. Actual tax rates may vary from this example for different taxpayers and assets (e.g., capital gains and qualified dividend income). The actual performance of your contract will also vary. 

Hypothetical interest is not guaranteed and does not represent the performance of any particular index annuity. If a withdrawal or distribution is taken, the tax-deferred earnings would be reduced by income taxes on any interest and, if taken prior to age 59½, a 10% IRS tax penalty may apply.
Consider your personal retirement plan and income tax brackets, both current and anticipated, when making financial decisions.

Upside Potential

Fixed index annuities provide an opportunity for potential interest growth based on changes in one or more indexes. Because of this potential indexed interest, FIAs provide a unique opportunity for accumulation. 

And since the interest your contract earns is tax-deferred, it may accumulate assets faster. In addition to potential indexed interest, FIAs can offer you an option to receive fixed interest.

Principal Protection

Fixed index annuities offer you a level of protection you may find reassuring. That protection can benefit you in three separate ways:

Accumulation: Your principal and credited interest are protected against market downturns.
Guaranteed income: You can be protected from the possibility of outliving your assets.
Death benefit: If you pass away before annuity payments begin, a fixed index annuity may help you provide for your loved ones.

Currenty Fixed Index Annuity Rates

Illustration of retired man driving blue sports car pulling a sign that says friendly fact.

Indexed Annuity Owners are More Confident in Retirement

Investors who own annuities, across all wealth segments, are more confident that their savings and investments won’t run out, even if they live into their 90s.¹

“Singlehood in Retirement: A Study of Retirees,” LIMRA Secure Retirement Institute (March 2018)

How Do Fixed Index Annuities Work?

When you purchase a fixed index annuity, you can allocate your account value to one or more indexes.  At each contract anniversary, the performance of your selected index is measured and one of the index annuity crediting methods is applied to determine how much interest will be credited to your annuity for that contract year.

Step #1: Determine the market index’s annual performance.

Step #2. Apply the crediting method applicable to your index annuity.

If the stock market index performs your index annuity will automatically be credited interest, subject to a participation rate, a cap, or spread. 

The annual lock-in and annual reset feature are two huge benefits of an index annuity and they are not talked about enough.

  • Annual lock-in: Your account value is locked in every year at your anniversary. This means once you’ve earned interest you can not lose it due to market volatility. It is not a number on a piece of paper (401k) it is real money.
  • Death Benefit: This also means your death benefit is locked in because your account value is the death benefit (unlike variable annuities without an optional death benefit rider).
  • Annual Reset: This means the starting value used to measure the stock market index performance resets every year. So in a year where an index is down 30% your account value remains flat because it is “locked in”; however, your new starting point is 30% lower.

#1. Determine the Market Index Performance

The annual point-to-point indexed annuity crediting method compares index values from two points in time; your contract issue date and the annual anniversary. If the result is positive, interest is credited, subject to the capspread, or participation rate. If the result is negative, the credited interest rate is 0%.

The below graph shows a hypothetical index value change from 100,000 on contract issue to 107,000 on contract anniversary. This represents an annual index performance of 7%.

Annual point to point chart for index annuity crediting method

Calculating the Interest Credited to an Index Annuity:

Calculate the Specified Market Index Performance to determine how much interest is credited to your index annuity.

No single index annuity crediting method consistently delivers the most interest under all market conditions. You can use one of these annuity calculators to “play with some numbers”.

Annual Cap

Index PerformanceCapInterest Earned

Participation Rate

Index PerformancePAR RateInterest Earned


Index PerformanceSpreadInterest Earned

Stock Market Indexes Available in a Fixed Index Annuity

Annuity CompanyAM Best RatingStock Market Index Page
Sentinel Security LifeB++Goldman Sachs Aging of America Dynamic Balance Index (Ticker: SOLAOA)
AIGAS&P 500 (Ticker: SPX)
AIGAAQR DynamiQ Index
AIGAMerrill Lynch Strategic Balanced Index (MLSB)
AIGARussell 2000 Small Cap Market Index .RUT
AIGAMSCI EAFE – Non U.S. and Canada Index EAFE
Allianz LifeA+S&P 500 (Ticker: SPX)
AllianzA+Nasdaq 100 Index
AllianzA+Blackrock iBLD Claria Index (IBLDCLRA)
AllianzA+PIMCO Tactical Balanced ER Index
AllianzA+Bloomberg US Dynamic Balance Index II
American EquityA-S&P 500 Daily Risk Control 2 8% Index
American EquityA-Dow Jones Industrial Average (DJIA)
American EquityA-S&P 500 Dividends Aristocrats Index
American EquityA-S&P 500 (Ticker: SPX)
AtheneAAiPex Performance Index
AtheneAS&P 500 Daily Risk Control 2 8% Index
AtheneANasdaq FC Index (BOFANFCC)
AtheneABNPMAD5 Index
AtheneAS&P 500 Daily Risk Control 5% Index
EquiTrustB++Barclays Focus50 Index (BXIIF50E)
Fidelity & Guaranty Life (F&G)A-S&P 500 (Ticker: SPX)
Fidelity & Guaranty Life (F&G)A-iShares Real Estate ETF
Fidelity & GuarantyA-Balanced Asset 10 Index
Fidelity & Guaranty A-iShares Core S&P 500 ETF
Fidelity & Guaranty A-Balanced Asset 10 Index. Ticker: CIBQB10E
Fidelity & Guaranty A-Barclays Trailblazer Sector 5 Index (ticker BXIITBZ5)
Global AtlanticAPIMCO Balanced Index PIMBAL
Global AtlanticAMSCI EAFE Non U.S. and Canada Stock Index EAFE
Global AtlanticARussell 2000 Small Cap Index .RUT
Global AtlanticABlackrock Diversa Volatility Controlled Index ^IBLDV7E
Global AtlanticAFranklin U.S. Equity Index FTUSLX
Great AmericanAS&P 500 Daily Risk Control 10% Index
Great American AIShares U.S. Real Estate ETF 1YR
Great AmericanAS&P 500 U.S. Retiree Spending Index
Lincoln Financial A+Fidelity AIM Dividend Index
Lincoln Financial A+S&P 500 Daily Risk Control Index 5%
NationwideA+S&P 500 Daily Risk Control 5% Index
NationwideA+S&P 500
NationwideA+AB Growth and Value Balanced Index
North AmericanA+S&P 500 Low Volatility Daily Risk Control 5%
North AmericanA+S&P MARC 5% ER
North AmericanA+Fidelity Multifactor Yield Index 5% ER
North AmericanA+S&P 500 (Ticker: SPX)
North American A+NASDAQ 100 Index
Oxford LifeA-S&P 500 Index
Oxford LifeA-2 Year Citi Flexible Allocation Index CIISFM6E
PrincipalA+S&P 500 Index SPX
Reliance StandardA+S&P 500 Index
SILAC InsuranceB+Credit Suisse RavenPack
The StandardA+S&P 500 Index SPX

Best Fixed Index Annuity Companies 2020 (by sales)

2020 RankAnnuity Company2020 Sales
2Allianz Life$5,016,919
3AIG Companies$4,542,675
4Sammons Financial Companies$3,743,678
5Fidelity & Guaranty Life$3,458,101
6Global Atlantic$3,071,197
8Security Benefit Life$2,882,395
9Great American$2,348,040
10American Equity$2,338,390
2019 Top Fixed Index Annuity Sales by Company,
Further Reading

Pros and Cons of a Fixed Index Annuity

Indexed Annuity Pros

  1. Backed by highly rated, state-regulated insurance companies
  2. They grow tax-deferred (tax deferral)
  3. Participate in a portion of stock market gains without the risk of loss
  4. You can make unlimited contributions unlike a 401(k) or IRA
  5. The death benefit may be paid directly to the beneficiaries, bypassing probate
  6. Can be turned into a guaranteed lifetime income you cannot outlive

Indexed Annuity Cons

  1. Eventually, gains earned in an annuity are taxed at ordinary income tax rates, unlike stocks which are treated as capital gains.
  2. A withdrawal prior to age 59 1/2 results in a 10% IRS penalty.
  3. During the annuity contract (usually 5 to 10 years) you only have access to your annual free withdrawal amount which is almost always 10% of the account value.
  4. Fixed index annuities can be complicated and may seem overwhelming.
  5. Fixed-indexed annuities are not FDIC insured.

Best Fixed Index Annuity For Accumulation

Best Fixed Index Annuity For Income

Best Fixed Index Annuity For Wealth Transfer

Fixed Index Annuity vs. Variable Annuity

Fixed Index Annuity and Variable Annuity From 2006 to 2020

The line graph below compares the sales of variable annuities (VA) and fixed index annuities (FIA) in the United States from 2006 to 2020. Variable annuities are represented by the blue line while the red line represents indexed annuity sales.

As you can see, variable annuities have decreased in popularity significantly while fixed index annuities are becoming increasingly popular. VA sales decreased from approximately $185 Billion in 2006 to ~$100 Billion in 2020 while index annuity sales increased from ~$75 Billion in 2006 to ~$120 Billion in 2020.

2016 marked the first year that individual fixed index annuity sales surpassed variable annuity sales in the United States. This is due in large part to the high cost and fees associated with variable annuities vs. the low or no fees of an index annuity.

Typical Variable Annuity Fees

  1. M&E (mortality and expense) – average around .50%
  2. Sub-Account Fees – average 1.00%
  3. Optional Rider Fees (income rider or death benefit rider) – Average 1.00% each
Typical Index Annuity Fees
  1. No Fees for Base Index Annuity 
  2. Optional Indexed Annuity Rider Fees – Average 1.00%

If you are considering purchasing a variable annuity you will find download the U.S. Securities and Exchange Commission’s (SEC) Variable Annuities: What You Should Know investor tips here.

Indexed Annuity Terminology

10% Free Withdrawals

Annual free withdrawals up to 10% of your index annuity’s account value annually without penalty.

Interest Only Free Withdrawals

Withdraw your index annuity’s accumulated interest annually without penalty.

Extended Care Waiver Rider

If you are confined to a nursing home or long-term care facility for at least 90 consecutive days (after the first contract year), this waiver provides you with the option to withdraw 100% of your index annuity’s account value without penalty.

Terminal Illness Rider

After the first contract year, if you are diagnosed by a physician as having a terminal illness, you have the option to withdraw up to 100% of your indexed annuity’s value without penalty.

Our Annuity Terms Glossary has a comprehensive list of index annuity terms and definitions written in plain English.

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