Fidelity Annuity Review: Pros and Cons
How Fidelity’s annuities work, what they cost, and what to watch for before you buy.
Fidelity can be a good place to buy an annuity. But a familiar name does not always mean a better deal. The annuity itself determines how your money grows, how much you can take out, and what your family receives after you die.
Some annuities pay a fixed interest rate. Others provide regular payments in retirement. Variable annuities invest your money and can lose value. These are different products, even when you buy them through the same company.
Our view: Compare the annuity, not just the company selling it. Before choosing a traditional income annuity, we also recommend comparing a fixed indexed annuity with a lifetime income benefit. We explain that alternative below.
Who Is Responsible for Your Annuity?
Fidelity sells annuities from several insurance companies. Check the name of the company providing your annuity. That company is responsible for its guarantees and payments. Its financial strength matters.
Annuities are agreements with insurance companies. You put money in, and the company promises certain benefits. The type you buy determines how your money grows or pays you income. It also determines the rules for getting your money back.
The Annuity Options Covered in This Review
| Annuity type | How it works | Main drawback |
|---|---|---|
| Fixed annuity or MYGA | Pays a set interest rate for a set number of years. | Taking money out early may cost you. |
| Immediate income annuity | Turns a deposit into regular payments that start soon. | You usually give up access to the money you paid in. |
| Deferred income annuity | You pay now for regular payments that begin later. | Your money is usually committed before payments start. |
| Variable annuity | Your money grows or falls with the investments you choose. | You can lose money, and fees reduce what you keep. |
Fixed Annuities and MYGAs: Earn a Set Interest Rate
Fixed annuities can help you grow savings without tying your interest rate to the stock market. A multi-year guaranteed annuity, or MYGA, locks in that rate for a set number of years. You know the rate before you buy.
For example, a five-year MYGA keeps the same guaranteed rate for those five years. A stock market drop does not change that rate. This can suit someone who wants predictable growth and does not need to spend the money during that time.
The drawback is access to your money. The annuity may let you take out a limited amount without a charge. Larger withdrawals can cost you. Ask exactly how much you can take out, when you can take it out, and what you would receive if you closed the account early.
Also check what happens when the guaranteed rate ends. The next rate may be lower. A MYGA guarantees interest for its stated period; that alone does not guarantee retirement payments for the rest of your life.
Compare Fidelity fixed annuity rates with other companies.
Immediate Income Annuities: Start Retirement Payments Soon
With immediate annuities, you pay an insurance company a lump sum. In return, it sends you regular payments, usually starting within a year. You can choose payments that last for your lifetime.
The benefit is a predictable paycheck. You know what the company promises to pay, and stock market drops do not reduce the payments from a fixed income annuity.
The drawback is giving up access to your savings. Turning your money into scheduled payments is called annuitization. You generally cannot later change your mind and take back the original deposit. The National Association of Insurance Commissioners explains how income annuities work.
Check what happens when you die. Payments that cover only your life can stop at your death. Other choices can continue payments to a spouse or leave money to your family. Those protections can mean a smaller payment while you are alive.
This type may suit someone who wants steady income and has other savings for emergencies. Our Fidelity immediate annuity review looks more closely at these options.
Deferred Income Annuities: Pay Now, Receive Income Later
Deferred income annuities work in a similar way, but payments begin at a later date you choose. You put money in now to arrange a paycheck for later in retirement.
The benefit is knowing that future income is in place. The drawback is that your money is usually tied up before those payments begin. Ask what your family would receive if you died before the starting date. Do not assume the insurance company will automatically return your deposit.
We are cautious about giving up access to savings years before you need the income. Compare the fixed indexed annuity option below before making that commitment.
Buying a MYGA now and shopping for lifetime income later is different. That approach does not lock in your future retirement payment today. You will have to accept the income offers available when you are ready to buy.
Variable Annuities: Your Money Can Grow or Lose Value
A variable annuity lets you choose investments inside the annuity. Your balance can rise when those investments do well and fall when they do poorly. This is not the same as earning a guaranteed interest rate.
One benefit is waiting to pay taxes on investment earnings until you take money out. That delays the tax bill; it does not make the earnings tax-free. Fees also reduce the amount you keep.
Fidelity Personal Retirement Annuity has an annual annuity fee and separate investment-fund fees. Fidelity lists no surrender charge for this product—a fee some annuities charge for taking money out early. Taxes on withdrawals can still apply.
Our view: This may be worth considering after you have put as much as allowed into your workplace retirement plan and IRA. But it is not our first choice for someone who wants to avoid stock market losses or create a guaranteed retirement paycheck.
For people who want both market growth and dependable income, we often compare keeping investments separate from the annuity used for retirement payments. Compare the total fees either way. The Securities and Exchange Commission explains variable annuity risks and costs.
Fixed Indexed Annuities With Lifetime Income: An Alternative We Prefer
Before giving up access to your money through a traditional income annuity, compare a fixed indexed annuity with a lifetime income benefit. This is the combination we often prefer for retirees who want a paycheck and more control over their remaining savings.
A fixed indexed annuity, or FIA, can earn interest based partly on a stock market index. An index measures the performance of a group of investments. Your money is not directly invested in the stock market. A market drop does not take money out of the annuity, although fees and withdrawals can reduce your balance.
The annuity limits how much interest you can earn, and some periods may earn none. F&G explains how fixed indexed annuities work.
How the Lifetime Income Benefit Works
The income feature is called a guaranteed lifetime withdrawal benefit, or GLWB. It lets you take a set amount from the annuity each year for the rest of your life. Follow the withdrawal rules, and the insurance company keeps paying even if your account balance eventually reaches zero.
While money remains in the annuity, you may still be able to take some out or close the account. This gives you more choices than a traditional income annuity. But taking too much can reduce or end your guaranteed payments, and closing the account ends the income benefit. Charges may also apply.
If you die while money remains, the people you named may receive a death benefit. That does not mean your original deposit stays untouched. Withdrawals and fees reduce the balance. If the balance reaches zero, there may be no money left for your family, even though your own guaranteed payments continue.
The benefit is income for life with access to any remaining money under the contract’s rules. The drawbacks are withdrawal limits, possible fees for the income feature, and limits on interest growth. We prefer comparing these features rather than assuming every lifetime income product works the same way.
Estimate Your Retirement Payments
Use the annuity payout calculator and the tool below to see how much income your savings might provide. The result is an estimate. Ask for a written quote before buying.
For each quote, use the same age, deposit, and date for starting payments. If your spouse will also receive income, include their age too. Check whether payments continue to your spouse after you die and whether any money goes to your family. These choices can change the amount you receive.
What We Look for in a Fixed Indexed Annuity
Income that does not depend on a good stock market. We prefer a product that tells you what retirement payment it can guarantee before you buy. We do not want your plan to depend on a sales example that assumes strong future growth.
A clear difference between your money and your income calculation. Some annuities show a separate value used only to calculate retirement payments. That number is not a cash balance you can take out. Ask to see both the money you could withdraw and the income you could receive.
A fresh chance to earn interest each year. We generally prefer an option that measures index changes over one year rather than two. Over ten years, that gives you ten chances to earn interest instead of five. More chances do not guarantee more total interest, but we prefer the shorter measuring period unless there is a clear reason to choose otherwise.
The Pros and Cons of Buying Through Fidelity
What We Like
Convenience for existing customers. You may prefer working with a company you already use for investing or retirement savings. That can make it easier to ask questions and get started.
More than one type of annuity. Fidelity works with a network of insurance companies. You can compare different ways to grow savings or receive retirement income. Some products are also worth comparing on cost.
What We Would Watch Out For
Its selection is not the whole market. An annuity sold through Fidelity may work well for you, but another insurance company may offer a better fit. Do not assume that keeping everything with one company gives you the best deal.
Getting your money back can be expensive or difficult. Read the annuity fees and charges for the product you are considering. Ask what you would receive if you needed extra money next year—not just what happens if you follow the original plan.
There are still risks. You can lose money in an annuity through investment losses or charges, depending on the product. A fixed retirement payment can also buy less over time as prices rise. The insurance company must remain able to meet its promises.
Who Might Benefit—and Who May Not Need One
An income annuity may help when Social Security and a pension do not cover your regular bills. A fixed annuity may suit savings you want to grow at a predictable rate. Either way, keep separate money for emergencies so you are not forced to take expensive early withdrawals.
You may not need an income annuity if your existing guaranteed income already covers your needs. You may also want to wait if you expect to spend the money soon, cannot afford to tie it up, or do not understand the withdrawal rules. Buying an annuity is not a requirement for retirement.
How to Pay for an Annuity
Money from a retirement account. Many annuities can accept an IRA transfer or an eligible rollover from a workplace retirement plan. Check that the annuity accepts your type of account before moving money. Have the companies follow the IRS rollover rules so a paperwork mistake does not create an unexpected tax bill.
Our 401(k) retirement calculator can help you estimate future savings as you plan how much to set aside for retirement income.
Money from regular savings. You can also buy with regular savings from outside a retirement account. This is called a nonqualified annuity. Its earnings generally are not taxed until you take money out. That is tax-deferred growth: you delay the tax bill, not erase it.
An annuity inside an IRA does not give you another layer of tax savings just because it is an annuity. Choose it for the benefits you need. Taxes and an extra tax for early withdrawals may still apply. The IRS explains annuity taxes.
Already Own an Annuity?
Check what you would give up before replacing it. You could face a charge or lose a valuable guarantee. A properly arranged 1035 exchange may let you move an annuity bought with after-tax money without paying tax on its gains at that time. It does not remove the old annuity’s withdrawal charges. Have both products reviewed before making the switch.
Other Insurance Your Family May Need
Life insurance: This can leave money to a spouse or family members who depend on you. It may be worth considering if your annuity payments would stop when you die. You may not need more coverage if nobody relies on your income or you already have enough savings and insurance for them. The NAIC explains what to consider before buying life insurance.
Long-term care insurance: This may help pay for covered care at home, in assisted living, or in a nursing home. Consider it if those costs could use up savings you or your spouse need. An annuity that temporarily increases your income for care is not the same as a long-term care policy.
Disability insurance: This replaces part of your income if an illness or injury keeps you from working and meets the policy’s rules. It matters most while you still rely on a paycheck. Someone who is fully retired generally does not need a new policy to replace wages.
What We Recommend
Start with the job you need the annuity to do. A MYGA can provide a fixed interest rate. A fixed indexed annuity with a lifetime income benefit can provide retirement payments while protecting against stock market losses. Keeping other investments separate may give you room to pursue growth. Do not expect one annuity to do every job equally well.
For a large purchase, consider whether splitting the money among different insurance companies would make sense. That can reduce how much you depend on any one company. Buying several annuities from the same insurance company does not spread that risk.
An independent annuity broker can compare your Fidelity quote with products available through other insurance companies. Ask what each one pays, what it costs, and how much money you can get back. If Fidelity’s offer fits best, there is no reason to reject it just because another company sells annuities too.
Common Questions About Fidelity Annuities
Are Fidelity annuities a good investment?
They can be useful, but it depends on the product. A fixed annuity can grow savings at a set rate. An income annuity can provide retirement payments. A variable annuity can lose value. Compare the fees and withdrawal rules before buying.
Are Fidelity annuities FDIC-insured?
No. FDIC insurance does not cover annuities. The insurance company named in your annuity is responsible for its guarantees. Buying through Fidelity does not turn the annuity into an insured bank account.
Can I change my mind after buying?
Check the cancellation period as soon as you receive the annuity. This is often called the “free-look” period. After it ends, getting your money back may involve charges or restrictions. A traditional income annuity usually cannot be undone once you have committed to the payments.
Will my family receive money when I die?
That depends on the annuity and the options you choose. Some continue payments to a spouse or leave a remaining balance to family. Others stop paying when you die. Ask the insurance company to put the answer in writing before you buy.
How We Can Help
Contact The Annuity Expert for free, no-obligation annuity quotes. Send us the offer you are considering. We will help you compare how much income you would receive, the fees you would pay, and what would happen if you needed your money back.
We can also provide free quotes for life, long-term care, or disability insurance when you need that coverage. Our comparison service is free. The annuity or insurance policy you choose may still have costs.
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Availability and benefits depend on the product and your state. Guarantees depend on the insurance company’s ability to pay. Our recommendations are opinions, not promises of better results. Ask a tax professional about your own situation before moving retirement money.