01Introduction
A fixed annuity is a contract with an insurance company in which the insurer takes on the investment and longevity risk. Your principal is guaranteed, and whatever the contract pays—interest, income, or both—is spelled out in advance rather than tied to the ups and downs of a market account. That guarantee is what separates fixed annuities from variable annuities, where the contract value rises and falls with underlying investment funds.
Within the fixed family, the products divide along one simple question: do you want income now, or do you want to grow money first? Immediate annuities answer the first; deferred annuities answer the second. From there, each branch has two main variations.
02Immediate Annuities
Single Premium Immediate Annuity (SPIA)
A SPIA converts a lump sum into a stream of guaranteed payments that begin within a year of purchase. You choose the payout structure—for life, for a set number of years, or for life with a guaranteed minimum period—and the insurer calculates a fixed payment based on your age, the amount, and current rates. Once payments start, they do not change unless you selected an inflation adjustment. SPIAs are the most direct way to turn savings into a paycheck that cannot be outlived.
Deferred Income Annuity (DIA)
A DIA works the same way as a SPIA, except the income start date is pushed out—commonly anywhere from two to forty years. Because the insurer holds the money longer before paying, the eventual payments are larger per dollar committed. DIAs are often used to lock in a known income floor for a later stage of retirement, and a specific version called a QLAC (Qualified Longevity Annuity Contract) can be funded with retirement account dollars while deferring required minimum distributions on that portion until as late as age 85.
03Deferred Annuities (SPDAs)
A Single Premium Deferred Annuity (SPDA) is funded with a lump sum and accumulates on a tax-deferred basis until you either take withdrawals, convert it to income, or exchange it for another contract. The two main types differ in how interest is credited.
Multi-Year Guaranteed Annuity (MYGA)
A MYGA credits a fixed interest rate that is locked for a set term, typically three to ten years. It is the closest thing in the annuity world to a certificate of deposit, with two differences: interest grows tax-deferred, and the guarantee comes from the insurer rather than the FDIC (Federal Deposit Insurance Corporation). At the end of the term you can renew at the new rate, move the money to another annuity through a tax-free exchange, or take the funds. MYGAs suit people who want a known rate for a known period.
Fixed Indexed Annuity (FIA)
An FIA credits interest based on the performance of a market index, such as the S&P 500, without investing in the market directly. When the index rises, the contract earns interest subject to a cap, participation rate, or spread set by the insurer. When the index falls, the contract earns zero for that period—the principal and prior gains stay intact. FIAs trade a portion of the upside for the elimination of market losses, which makes them a common choice for money that is five to ten years away from being needed.
The Guaranteed Lifetime Withdrawal Benefit (GLWB). Most FIAs offer an optional income rider called a GLWB. It adds a second value to the contract—often called the income base or benefit base—that exists only to calculate a future withdrawal amount. The income base typically grows at a guaranteed roll-up rate (for example, 7% simple or compound per year) for a set number of years or until income begins, regardless of how the index performs. When you elect to start income, the insurer applies a payout percentage based on your age to the income base, and that annual withdrawal is guaranteed for life—even if the actual contract value is later drawn down to zero.
What makes the GLWB distinct from a SPIA is control. The contract value remains yours: you keep any interest credits, you can still take additional withdrawals (which reduce the guaranteed income), and any remaining balance passes to your beneficiaries. The rider carries an annual charge, usually around 1% of the income base, deducted from the contract value. In practice, an FIA with a GLWB lets you defer income while knowing in advance the minimum you will be able to draw, then turn that income on when you are ready without giving up the underlying asset.
04Putting It Together
| Type | Purpose | Income starts | Interest credited |
|---|---|---|---|
| SPIA | Income now | Within 12 months | Built into the payout |
| DIA | Income later | 2–40+ years out | Built into the payout |
| MYGA | Accumulation | At your discretion | Fixed rate for the term |
| FIA | Accumulation | At your discretion | Linked to an index, never below zero |
Each product solves a different problem. The right one depends on when you need income, how long you can leave the money alone, and how much growth potential you want relative to a guaranteed rate.