Annuities are insurance products that promise guaranteed income, but they come in many varieties with very different costs and benefits. Here’s a clear look at what they actually offer.
Annuity Types at a Glance
| Type | How Returns Work | Guaranteed Income? | Risk | Fees | Complexity |
|---|---|---|---|---|---|
| SPIA (Immediate) | Fixed payments start immediately | Yes | Low | Low (built into rate) | Low |
| Fixed | Guaranteed interest rate | Yes | Low | Low | Low |
| Fixed Indexed | Returns linked to market index, with floor | Yes (with rider) | Low-Medium | Medium | Medium |
| Variable | Returns based on investment sub-accounts | Optional (with rider) | Medium-High | High (2-3%+) | High |
How Much Income Annuities Provide
Single Premium Immediate Annuity (SPIA) Monthly Income
Figures below are single-life, male, illustrative estimates as of late 2026 — actual quotes vary by insurer, gender, and the day you request a quote, since SPIA pricing moves with interest rates. Always get a current quote rather than relying on a published table.
| Premium Invested | Age 60 | Age 65 | Age 70 |
|---|---|---|---|
| $100,000 | $555-$600 | $650-$700 | $745-$795 |
| $200,000 | $1,110-$1,200 | $1,300-$1,400 | $1,490-$1,590 |
| $300,000 | $1,665-$1,800 | $1,950-$2,100 | $2,235-$2,385 |
| $500,000 | $2,775-$3,000 | $3,250-$3,500 | $3,725-$3,975 |
Ranges depend on current interest rates, gender, and whether any survivor benefits are included. Female payouts typically run 5-10% lower than male at the same age due to longer average life expectancy; joint-life options typically run 12-16% lower than single life.
Fixed Annuities
| Feature | Details |
|---|---|
| How it works | Insurance company guarantees a fixed interest rate for a set period |
| Current rates (as of Sept 2026) | Top-tier online MYGA rates run roughly 3.9%-4.1% for competitive terms, per Bankrate’s monthly survey; A-rated carrier rates commonly range 5.0%-5.75% for some terms depending on the offer — rates vary significantly by term and carrier, so shop multiple quotes and confirm the current rate before buying |
| Minimum investment | $5,000-$25,000 |
| Liquidity | 10% annual withdrawal typically penalty-free; surrender charges for more |
| Tax treatment | Tax-deferred growth; ordinary income when withdrawn |
| Best for | Conservative savers wanting CD-like rates with tax deferral |
Fixed Annuity vs. CD
Rate ranges below are illustrative and change frequently with the Fed funds rate — confirm current rates before comparing products.
| Feature | Fixed Annuity | CD |
|---|---|---|
| Interest rate (confirm current) | Commonly in the mid-single digits for top offers; varies by term and carrier | Top nationally available CDs commonly run in the low-to-mid single digits; national average is much lower |
| Tax on interest | Deferred until withdrawal | Taxed annually |
| FDIC insured | No (state guaranty funds, typically $250K, though some states go up to $500K) | Yes (up to $250K) |
| Early withdrawal penalty | Surrender charges (5-10% declining) | Lost interest (usually) |
| Minimum term | 3-10 years | 3 months-5 years |
| Required minimum distributions | No (unless in IRA) | N/A |
Variable Annuities
Fee Structure (Why Most People Should Avoid Them)
| Fee Type | Typical Amount |
|---|---|
| Mortality and expense risk charge | 1.00-1.50% |
| Administrative fees | 0.10-0.30% |
| Investment sub-account fees (expense ratios) | 0.50-1.50% |
| Guaranteed income rider | 0.75-1.25% |
| Total annual fees | 2.35-4.55% |
Impact of Fees on a $200,000 Investment Over 20 Years
The table below is an illustrative projection assuming a constant 10% gross annual return, which is not guaranteed and does not reflect any specific investment’s actual or expected performance.
| Investment | Annual Fees | Assumed Gross Return | Net Return | Illustrative Value After 20 Years |
|---|---|---|---|---|
| Index fund (S&P 500) | 0.03% | 10% (assumed) | 9.97% | $673,000 |
| Variable annuity (with rider) | 3.0% | 10% (assumed) | 7.0% | $387,000 |
| Difference | $286,000 |
High fees can meaningfully erode returns over time — in this illustrative example, roughly $286,000 over 20 years on a $200,000 investment, though actual results depend entirely on realized market returns, which are never guaranteed.
Who Should Consider an Annuity
| Candidate | Best Type | Why |
|---|---|---|
| Retiree wanting guaranteed income for life | SPIA | Simple, low-cost, guaranteed |
| Conservative saver (already maxed 401k/IRA) | Fixed annuity | Tax-deferred growth at competitive rates |
| Someone with pension envy | SPIA | Creates pension-like income |
| High earner seeking tax deferral | Fixed or indexed | Tax-deferred after maxing other accounts |
Who Should Avoid Annuities
| Situation | Why |
|---|---|
| Haven’t maxed 401(k) and IRA | Those are better (lower fees, possible match) |
| Under age 50 | Long time horizon = better off in market investments |
| Need liquidity | Surrender charges penalize early withdrawals |
| Sold an annuity by a commission-based agent | Agent earns 5-8% commission—motivation is misaligned |
| Variable annuity marketed for tax deferral | Fees negate the tax benefit for most people |
The Bottom Line
Simple fixed annuities and SPIAs can play a useful role in retirement income planning—they provide guaranteed income you can’t outlive. Variable annuities, however, are usually a poor choice due to fees of 2-4% that erode returns by hundreds of thousands over time. If you want guaranteed income, a SPIA is the simplest and cheapest option. If you want growth, low-cost index funds in tax-advantaged accounts come first. Only consider annuities after maxing out 401(k), IRA, and HSA contributions.
For a deeper dive on how annuities work in practice, see annuities in retirement and fixed vs. variable annuity. Return to the Annuities Guide hub.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy