People say “annuity” as if it were one product. It is four different jobs wearing the same word.
A fixed annuity credits a declared rate. A MYGA (multi-year guaranteed annuity) locks that rate for a set term, often 3, 5, or 7 years. It is an insurance contract, not a CD. It is not FDIC insured. Guarantees depend on the issuing carrier. Liquidity is limited by surrender charges. Tax on gains usually waits until you take the money out.
An indexed annuity (FIA) does not buy the index. It uses an index to calculate a credit, typically with a cap, a participation rate, and a 0% floor for that period. In a down year that slice is not supposed to take the market loss. Caps change. An optional lifetime-income rider is a separate, paid-for decision. Do not buy an FIA because an illustration showed last year’s cap forever.
An income annuity turns a lump sum into checks. A SPIA starts almost immediately. A DIA (deferred income annuity) starts later — longevity insurance for the years you might live past 85. Once you annuitize, you generally cannot get the principal back. That is the trade for a paycheck you cannot outlive.
Match the contract to the job
- Park money for a defined term at a stated rate. Start with a MYGA or declared-rate fixed annuity.
- Want a floor under a portion of savings, and can leave it for the surrender period. An FIA can be the slice — not the whole portfolio.
- Need a paycheck for life, and can give up the lump sum. A SPIA (now) or a DIA (later).
None of these is a checking account, a growth-equity substitute, or a replacement for life insurance. Life coverage is insurance. Annuities sit under Financial Services. If the household still needs a death benefit, buy life insurance for that job. If a spouse would need care, look at long-term care coverage separately. Wellesley Collective will quote the contract that matches the use of funds and tell you when an annuity is the wrong box.