Are annuities safe if the market crashes? Experts weigh in

CBS News

a day ago

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The right annuity type can help retirees weather market turbulence and downturns.
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Though inflation has been decreasing, higher costs have had a major impact on the lives of many Americans, including seniors in or approaching retirement. Increased costs, as well as market uncertainty, geopolitical tensions, and other economic fears have many retirees on edge and nervous about what's next.
For those who are relying on their investment portfolios, the prospect of a stock market crash can be especially unsettling when time isn't exactly on your side. Due to the combination of these factors, annuities have surged in popularity over the past few years.
An annuity is often referred to as an agreement between an individual and an insurance company. You typically can provide a lump sum of money or multiple payments, and in exchange, you can get guaranteed income that can last for a set term or the rest of your life. Additionally, some annuity options can be insulated from the volatility of the stock market.
However, there are a variety of annuity types to explore and some provide more protection than others. So, are annuities safe if there's a major economic downturn and the market crashes? And if so, which ones? We spoke to retirement experts about the nuances between annuity products and how insulated they are from external risk factors, like a market crash.
Boost your retirement funds with an annuity here.
Are annuities safe if the market crashes?
In this uncertain economic climate, it's natural to want to find some certainty, which is why annuities can be so appealing, especially if you choose the lifetime income option.
Many people fear running out of money. According to the 2025 Annual Retirement Study from the Allianz Center for the Future of Retirement, 64% of respondents worry more about running out of money than death. 54% of respondents noted that inflation adds to those fears. Annuity income can be a solution to look into. However, there are different annuity payout options and types available. Below, we cover what an annuity is and the risk factors associated with each type.
How do annuities work?
When you get an annuity, you're essentially entering into a contract with an insurance company. The goal is to provide retirement income in your golden years. But the type you choose will affect how you pay, when the annuity pays out, and how the annuity fares with stock market volatility.
Payment: You may make a lump sum payment with a single premium annuity or a series of payments with a multiple premium annuity.
You may make a lump sum payment with a single premium annuity or a series of payments with a multiple premium annuity. Timing: You can choose an immediate annuity, which begins to pay out quickly, typically within one year. A deferred annuity is when you defer payment for a later day, sometimes years later.
You can choose an immediate annuity, which begins to pay out quickly, typically within one year. A deferred annuity is when you defer payment for a later day, sometimes years later. Type: In general, annuities can be fixed, indexed, or variable. A fixed annuity provides stability with a set interest rate. An indexed annuity offers returns that are lied to a specific market index, like the S&P 500 Index. A variable annuity has a rate that changes based on the performance of specific investments.
In general, annuities can be fixed, indexed, or variable. A fixed annuity provides stability with a set interest rate. An indexed annuity offers returns that are lied to a specific market index, like the S&P 500 Index. A variable annuity has a rate that changes based on the performance of specific investments. Annuity payout options: You can choose a lifetime income option or payouts for a specific term, such as 20 years.
The type of annuity can have the biggest impact on whether your funds are safe from the volatility of the stock market.
Explore your annuity options here to learn more.
Fixed annuities are often the safest option
If you're looking for an annuity option that's insulated from the volatility of the stock market, fixed annuities are typically the safest bet.
"Fixed annuities are annuities that have a fixed income rate. They are similar to, let's say, a CD," says Pamela Sams, chartered retirement planning counselor and financial advisor at Jackson Sams Wealth Strategies.
With a fixed annuity, the insurance company you have a contract with agrees to a guaranteed interest rate and a set payment for the term you choose, which can be years or throughout your lifetime. Because of their fixed nature and guarantee, fixed annuities are insulated from market fluctuations.
While this can be a positive for risk-averse investors, there are some drawbacks to consider. For example, your annuity returns may be lower compared to other investment vehicles and may not keep up with inflation.
Variable annuities carry more risk
A variable annuity may give you various investment options to choose from. As such, you could benefit from greater returns. On the other hand, you could also experience losses as well, making this option riskier if there's a market crash.
"A variable annuity, aside from the fact that oftentimes they're very heavily loaded with fees, so they're expensive to have…they're exposed to the market risk, that means that when the market crashes, the investments within the variable annuity are also going to go down with the market. So they are not exactly the safest type of annuity to be invested in," says Krisstin Petersmarck, a retirement income certified professional and founder and owner of New Horizon Retirement Solutions.
Fixed indexed annuities (FIAs) have limited risk
A fixed indexed annuity (FIA) can give you greater returns than a traditional fixed annuity, without as much volatility and risk as a variable annuity. Through a fixed indexed annuity, you may have a minimum guaranteed rate combined with a rate that's pegged to a specific index, like the S&P 500.
"A type of fixed annuity called an indexed annuity…earnings can fluctuate based on the performance of an index, but your principal is secure," says William A. Stack, retirement income certified professional and owner of Stack Financial Services LLC.
An FIA offers the possibility of earning more based on market participation, but preserves the principal in a downturn.
"So instead of a fixed interest rate like the 4% or 5%, the fixed indexed annuity has market participation. So, for example, if the stock market goes up 10% and you are participating up to 6%, then you get 6% versus the 10%," says Sams.
Deferred income annuities provide guaranteed income
As pensions become increasingly rare, it's important to set up options that can help you in the future. A deferred income annuity (DIA) can be a solid alternative.
"It's designed like the same concept of an income annuity, but because it's deferred, that means that you're giving the insurance company a certain amount of time that they're going to have your premium that they get to invest in the market, but you do not start receiving your income right away," says Petersmarck.
You may use a DIA for retirement income and start receiving the funds within 13 months up to 40 years later. If you purchase a DIA, you may also be able to add more contributions later. However, the insurance carrier may put caps on how much you contribute. A DIA can provide you with a fixed payout for the remainder of your life, regardless of what's happening in the market.
The bottom line
An annuity can help provide you with retirement income. Sams recommends "having at least 50% of your retirement income coming from some fixed type of source, either guaranteed income through an annuity, Social Security, pension type of things that you know that you can get on a month-to-month basis."
However, you want to be mindful of what type you have and how much exposure (if any) you have to the stock market.
"Each contract is going to have specific features that they should discuss with their agent and financial planner," says Stack.
The experts we spoke to agree that fixed annuities and fixed indexed annuities provide more protection to investors. On the other hand, variable annuities can have higher levels of risk if there's a market crash. As part of your retirement planning, it's key to understand your annuity options, how they work, and the fees and risks associated with each type. Lastly, look at the insurance company's ratings.
"Something to also keep in mind is that when you're looking at any kind of annuity, you want to be working with an insurance carrier that has a high rating. I recommend working with a carrier that has an A rating or better," says Petersmarck.
Have more questions? Learn more about your annuity options here.