What is the safest type of annuity to buy right now?

Knowing which annuity options are safe in this economic landscape is a key part of protecting your retirement. Wong Yu Liang/Getty Images

Today's unusual economic landscape, which is being impacted by issues like market volatility, interest rate shifts and inflation uncertainty, has pushed many Americans to rethink their retirement strategies. With traditional savings accounts offering lower yields compared to earlier this year and stock market swings making even seasoned investors uneasy, some are turning to annuities for a sense of predictability. These insurance products can be a smart option because they offer guaranteed income streams for life, which is particularly appealing in an unpredictable economy.

But while annuities do come with some sizable benefits overall, what you stand to gain from an annuity depends heavily on the type of annuity you choose, especially right now. From fixed to variable to indexed options, each type of annuity comes with its own balance of risk, reward and complexity. For example, while some annuities promise higher returns, those often come with exposure to market downturns or complicated fee structures. Others may offer lower returns but deliver more stability, making them attractive for those prioritizing safety over growth.

So, which annuity stands out as the safest option right now? That depends on how you define safety, of course, but in today's interest rate and market environment, certain annuity types are standouts.

Learn how you can benefit from adding an annuity to your retirement portfolio now.

What is the safest type of annuity to buy right now?

For investors and retirees seeking security, fixed annuities currently offer the strongest combination of safety and stability. Unlike variable or indexed annuities that tie your returns to market performance, fixed annuities guarantee a specific interest rate for a predetermined period, typically between three and 10 years. These annuities work similarly to certificates of deposit (CDs): Your principal is protected, you earn a guaranteed rate and you're shielded from market downturns entirely.

Right now, fixed annuities are particularly attractive because, while interest rates have been falling, they remain relatively elevated compared to the past decade. For example, many fixed annuities are offering guaranteed rates in the 5% to 6% range, which is substantially higher than what you'd find in traditional savings accounts or money market funds. This means you can lock in meaningful returns without exposing yourself to stock market risk.

Another safe option to consider is the multi-year guaranteed annuity (MYGA), which is essentially a specific type of fixed annuity that locks in your rate for the entire contract term. MYGAs remove the uncertainty of rate fluctuations, making them ideal for investors who want to know exactly what they're getting. These products also benefit from tax deferral, meaning you won't pay taxes on the growth until you start taking withdrawals.

For those seeking lifetime income guarantees, single premium immediate annuities (SPIAs) may also be worth consideration. With this type of annuity, you make a lump-sum payment to an insurance company, and the company immediately starts sending you monthly checks for life. While you're giving up access to your principal, you're eliminating longevity risk, meaning the danger of outliving your savings. This predictability makes SPIAs impressively safe from an income planning perspective.

Compare your annuity options and find the right fit for your retirement plans.

How to decide on the right type of annuity for you

While fixed annuities are generally the safest choice, the right annuity option depends, in large part, on your goals, timeline and risk tolerance. Start by determining what you want the annuity to do for your financial plan by considering the following:

• Income generation: If your primary goal is to create a reliable income stream for life, it could make sense to consider an immediate annuity or a deferred income annuity. These products start paying out either immediately or at a future date and can help cover essential expenses in retirement.
• Principal protection: If your top priority is safety and preserving your initial investment, a fixed annuity may be the best fit. The guaranteed rate that comes with this type of annuity ensures predictable growth, similar to a CD, but often with higher yields and tax-deferred accumulation.
• Potential for growth: If you want to participate in potential market gains while limiting downside risk, a fixed indexed annuity may work. Just be sure to understand the crediting methods, caps and participation rates tied to this type of annuity.
• Flexibility and liquidity: Consider how soon you might need access to your funds. Annuities often have surrender charges for early withdrawals, so matching the product's surrender period to your liquidity needs is a critical step.

It's also important to evaluate your time horizon. If you're within a few years of retirement, locking in today's higher fixed annuity rates could provide stability during a period of expected lower interest rates. If you have a longer timeline and can tolerate some complexity, though, indexed products may offer modest growth potential without fully exposing you to market volatility.

And, be sure to consider the issuer's financial strength and the contract terms carefully. Ratings from agencies like AM Best can give you insight into the insurer's ability to meet its obligations over time. Working with a fee-based financial advisor rather than one compensated by annuity commissions can also help ensure you're selecting a product that genuinely aligns with your needs.

The bottom line

When it comes to safety, fixed annuities are currently the most stable and predictable option, thanks to their guaranteed rates and insulation from market volatility. They're especially appealing in a falling interest rate environment, as they allow you to lock in today's higher yields for several years. For those who want additional growth or income features, though, other annuity types can fit, but the right choice depends on your specific goals, timeline and comfort with complexity. 

Edited by Matt Richardson