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What's a Fixed Annuity and Do I Need One?

Man writing at a desk wearing a collared shirt.

Content provided courtesy of USAA.

If you expound on the virtues of annuities at your next dinner party, don't count on all the guests jumping to join the conversation.

No, annuities aren't the most exciting topic for cocktail chitchat, but they are worth talking about — especially when it comes to understanding how they can complement your overall financial plan.

Annuities are actually insurance products. It used to be that almost all deferred annuities were bought for estate planning purposes, says Joni Stahl, annuity product management director at USAA. But as employer pensions became the exception rather than the rule, consumers began buying annuities to provide guaranteed income in retirement.

Keep these things in mind: 

  • Immediate annuities pay now. Consumers who need access to regular income should consider an immediate annuity, which takes a single, lump-sum premium and — you guessed it — immediately begins making payments for a set period of time or the rest of your life. Payments can be made monthly, quarterly, semiannually or annually.
  • Deferred annuities pay later. If you buy a deferred annuity, your money stays in the annuity for a certain length of time called a surrender period — seven or 10 years, in the case of USAA Life Insurance Company's products — and then is guaranteed to pay out a defined payment amount, whenever you decide to begin receiving payments.
  • You pay penalties for cashing out early. If you pull money out of a deferred annuity before age 59½, you could face federal tax penalties. Taking money out during the surrender period also can trigger charges from the insurance company. That's why a solid understanding of how and when you can access your money is an important part of deciding how an annuity can benefit you, says J.D. Livingston, annuity product management director at USAA.

That said, annuities aren't just for those close to retirement. As a retirement product, annuities can bring balance to portfolios with higher risk investments, Livingston says.

Fixed annuities offer several other advantages:

  • They are tax-deferred, which means the money you put in gains interest and you pay income tax on it when it's taken out.
  • Because they aren't stocks, they pose minimal stock market risk.
  • They provide guaranteed income that you will not outlive, and they can also provide payments to beneficiaries after your death, depending on the terms of your plan.

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USAA, a diversified financial services organization, is the leading provider of competitively priced financial planning, insurance, investments, and banking products to members of the U.S. military and their eligible families. Rated among the highest among financial services companies for customer advocacy in a Forrester Research survey, USAA provides convenient and accessible financial products to its more than 9 million members. For more information about USAA, or to learn more about membership, visit

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