Key Takeaways
- Fixed annuity and MYGA rates are running as high as 6.40%, well above typical savings account yields.
- Fidelity's own guidance says buy an income annuity based on need, not on trying to time interest rates.
- A dollar-cost-averaging approach lets you buy some guaranteed income now and add more later if rates improve.
- Watch for surrender charges, no inflation adjustment, and insurer strength before committing money to an annuity.
If you are eyeing retirement in the next few years, you have probably run the same math I have: will Social Security and savings actually cover the bills, or do you need something more locked-in? Annuity salespeople are leaning hard into today’s higher rates to push that decision along. Before you sign anything, here is what the numbers and Fidelity’s own guidance actually say.
Fixed annuity rates are running as high as 6.40% right now, and multi-year guaranteed annuities from A-rated insurers are paying up to 6.00%. That’s a big number next to a Social Security check that’s only going up 2.8% this year.
But a good rate doesn’t automatically mean you should buy an annuity. I dug into Fidelity’s own guidance on annuity timing, and the actual advice is more useful than “rates are high, buy now.”
What an Income Annuity Actually Buys You
An income annuity is a contract with an insurance company. You hand over a lump sum, and in exchange you get guaranteed payments — often for the rest of your life, no matter how long that turns out to be.
That’s different from a multi-year guaranteed annuity (MYGA), which works more like a CD. A MYGA locks in a fixed rate for a set term, and you decide what to do with the money once the term ends.
The 6.00%–6.40% rates making headlines this month are mostly MYGA rates, not income annuity payout rates. Don’t confuse the two when you’re comparing quotes.
Fidelity’s Rule: Buy Based on Need, Not on Timing
Fidelity’s own guidance is blunt about this: buy an income annuity when you need the income to start covering essential expenses, not because you’re trying to guess where rates are headed.
They lay out four things pulling in different directions if you wait. Your savings keep getting drawn down for essential costs, which shrinks what’s left to invest later. Money left in conservative investments earns modest returns with some market risk still attached.
Annuity payout rates themselves are unpredictable — they move with interest rates and the broader market. And every year you wait, you get older, which actually works in your favor, since insurers pay older buyers more per dollar because they expect a shorter payout period.
Fidelity illustrates the rate risk with a simple example: a $1,000 monthly payout today could become $1,080 a year from now if rates rise a point, stay at $980 if they hold roughly flat, or drop to $880 if rates fall a point. You genuinely don’t know which one you’ll get.
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The Dollar-Cost-Averaging Approach to Annuities
If you don’t want to bet your entire retirement on today’s rate environment, Fidelity points to a middle path: buy a smaller annuity now for guaranteed income, and add more later if rates look better — similar to dollar-cost averaging into an investment.
This keeps some money working for guaranteed income today while leaving the rest flexible. You’re not locked into one rate for your whole nest egg, and you’re not waiting on the sidelines for a “perfect” rate that may never show up.
It’s also worth weighing against maxing out tax-advantaged accounts first. If you haven’t hit your 2026 IRA or Roth IRA contribution limit, or you’re 60–63 and eligible for the retirement account super catch-up, that’s often worth doing before locking money into an annuity.
If the money you’re considering putting into an annuity would actually come from a pension buyout rather than your own savings, that’s a related but separate decision. See our breakdown of whether to take the pension payout as an annuity or roll it into an IRA before deciding anything here.
Two Ways This Actually Plays Out
Mark is 68, fully retired, and his Social Security check covers most — but not all — of his fixed monthly bills. He’s short about $600 a month for essentials like his mortgage escrow and medical premiums. For Mark, that’s a real, ongoing income gap, so buying a modest immediate income annuity now to close it makes sense. He needs the certainty more than he needs flexibility.
Sarah is 62, still working part-time, and isn’t sure yet when she’ll fully retire. She doesn’t have an income gap today, so locking money into an annuity now would just trade flexibility for a guarantee she doesn’t need yet. She’s parking that money in a high-yield savings account paying over 4% while she figures out her timeline, and she’ll revisit an annuity — maybe in pieces — once she actually stops working.
Looking Ahead: What the Fed’s Next Move Means for Annuity Rates
The Fed’s next rate decision lands September 16, 2026, just days after this post went up. Annuity payout rates and MYGA rates both tend to move with the broader interest-rate environment, so a cut or a hold here can shift the numbers insurers are quoting within weeks.
I’ll update this if the rate picture changes meaningfully. If you’re on the fence, that’s another reason the dollar-cost-averaging approach above can beat trying to time a single “best” moment to buy.
Common Issues to Watch Out For
I get questions about annuities a lot, and the same handful of gotchas come up every time.
Surrender charges. Many annuities lock up your money for 7–10 years, with steep penalties for early withdrawal. Only put in money you’re confident you won’t need for emergencies.
No automatic inflation adjustment. Unlike Social Security’s 2.8% COLA for 2026, most fixed annuities pay the same dollar amount for life. A $1,000 payment today buys less in 15 years.
Insurer strength matters. Your guarantee is only as good as the insurance company behind it. State guaranty associations provide backup coverage, but only up to state-set limits — check those before buying, especially from a lower-rated carrier chasing a higher rate.
MYGA vs. income annuity confusion. A MYGA is closer to a CD than a pension check. If what you actually want is guaranteed lifetime income, make sure you’re buying the right product, not just the highest advertised rate.
Tax treatment surprises retirees. If you’re 65 or older, remember the $6,000 senior deduction applies to your overall taxable income, not specifically to annuity payments — annuity income is generally taxed based on how much of each payment is considered a return of your original premium versus earnings.
This isn’t personalized financial advice — annuities are contracts with real tradeoffs, and a licensed financial advisor can run the numbers against your specific situation before you sign anything.
