3 Types Of Annuities To Secure Your Financial Future

Survey after survey tells us: Americans are worried about running out of money in retirement. A recent survey by the Alliance for Lifetime Income found that 80% of Americans say they fear their money won’t go the distance.

No wonder 83 percent of Americans say all workers should have a pension so they can be independent, self-reliant, and worry-free in their golden years, according to the National Institute of Retirement Security.  While pension benefits for all workers are pretty much a pipe dream, there is a financial tool you can use to buy yourself a pension of sorts — a retirement paycheck that will last as long as you do. And it doesn’t require systemic change, government intervention, or access to hedge funds, private equity, or crypto. 

We have the ability to fix this problem in our own lives with tools that we already have access to today. They’re called annuities and more people are interested in and buying them than in the past. In the first three quarters of 2025 alone, sales of annuities hit $347 billion – up 4.4% from the same period in 2024. 

Still, there’s no getting around the fact that annuities can be complicated. Here’s a guide to the main types of annuities to help you get started.  

WHAT IS AN ANNUITY? 

Essentially, an annuity is a “financial contract between you and an insurance company. They’re primarily retirement-focused, they give you a steady stream of income during retirement, and they are the only product that pays a guaranteed stream of income for life, even if you eat into the entirety of your investment,” explains Minji Ro, Chief Strategy Officer at Gainbridge, which sells annuities direct to consumers. 

In purchasing an annuity, you would give the insurance company a lump sum of money (or several chunks over time) and, in return, the insurance company promises to pay you a certain amount of money on a regular basis for a certain number of years or for life. Additionally, the payout for an annuity can be calculated based on just your life or based on the life of you and a spouse. Finally, with all types of annuities, you can often structure them so that if you die within a certain number of years your heirs will get some of your investment back — but you should also expect to pay more for that privilege.  

Those are the basics — and they apply to all types of annuities.  But there are three types of annuities that consumers should know about. We’ll go through them from the simplest and least risky to the most complex with the most risk.

FIXED ANNUITIES

When it comes to annuities, fixed annuities are the simplest type — you hand the insurance company a sum of money and, in exchange, they provide you with a paycheck. These, Ro explains, are “the insurance company equivalent of a bank CD.”  You can go into a bank and they will have a menu of time periods and interest rates for each of those time periods and you get locked into the time period and the interest rate.  “Fixed annuities work the same way,” in that the return you get is based on a number of factors including current interest rates and the length of time you’ll be receiving that payout — which is a function of your life expectancy. 

 “There are a couple of differences between a fixed annuity and a CD as well,” she continues. First, you’re doing business with an insurance company rather than a bank.  That means that the regulatory bodies that govern the institution are different.  Second, any growth you receive in an annuity is tax deferred; in a CD it is not.  And third, with an annuity you generally have access to some portion — usually up to 10% — of the money you invested.  “But just as with a CD, [annuities are not designed to be liquid] so you should really think about this money as something you don’t need to touch over the life of the contract.”  

FIXED INDEX ANNUITIES

The next bucket of products is called Fixed Index Annuities — or FIAs (pronounced fee-yahs) for short. Whenever an annuity has the word “fixed” in the title, Ro explains, you know that your principal is not at risk.  But what separates these products from the prior category is that, going in, you don’t know what your return is going to be.  “In a FIA,” says Ro, “your returns are going to be tied to a market index. Typically, it’s the S&P 500 but there are a huge variety of indices out there and you have the option of picking the index.”  

Because you’re taking risk on a market index, you have the potential for higher returns if the index does well — but if the index loses money, it is possible that your return will be zero. You won’t lose principal, but you won’t make anything either. “That makes sense,” she notes.  “Because the opportunity to have higher returns means that you have to give something up and in this case it’s that fixed interest rate [that you get with a fixed annuity.]” Again, Ro explains, there are nuances in these products that you’ll want to dig into if you start shopping for one — but this is the essence.  

VARIABLE ANNUITIES

Finally, there are variable annuities in which the underlying investments are mutual funds (called sub-accounts) that are essentially wrapped up in insurance.  In this case the value of your annuity goes up or down based on the underlying mutual funds that you choose and — note the word “fixed” is not in the title — your principal is fully at risk in this case. That’s different. 

THE MOST COMMON ANNUITY OF ALL

Finally, it bears noting that even if you don’t think you have any experience with (or knowledge of) the different types of annuities, you’re wrong.  Jason Fichtner, Chief Economist at the Bipartisan Policy Center, points out that “Social Security is an annuity. It is the most inflation-protected annuity out there.” Yet, it’s smart for many people to delay taking Social Security so they can get a higher monthly benefit. That’s where an annuity can come in as a way to create protected income on top of Social Security checks. 

If you decide an annuity may be a good step for you, the next move is to have a conversation with your financial advisor or to see if you have the ability to purchase annuities through your pre-existing retirement plan. You can also buy them directly from places like Gainbridge, where you can also calculate your guaranteed lifetime income based on your initial investment. 

This story is in partnership with Gainbridge. 

MORE ON HERMONEY:

• Ben Harris Shares What’s Wrong With Our Retirement System (And How To Fix It)
• No Retirement Savings? Here’s How To Catch Up
• How To Start Investing If You Only Have $1,000 (Or Less)

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Withdrawals are taxed as ordinary income and, if taken prior to age 591⁄2, there may be a 10% federal tax penalty. Withdrawals may result in a surrender charge or a market value adjustment (MVA) and excess withdrawals may result in a reduction of future payments under the guaranteed lifetime withdrawal benefit. Guaranteed Lifetime Withdrawal Benefit provided so long as your account value hasn’t gone to $0 due to excess withdrawals. Annual Percentage Yield (APY) rates are subject to change at any time, and the rate mentioned may no longer be current. Please visit Gainbridge.io for current rates, full product disclosures and disclaimer. ParityFlexTM, a multi-year guaranteed annuity, is issued by Gainbridge Life Insurance Company in Zionsville, Indiana.