Financial Planning
March 21, 2024

Are Annuities Safe in a Recession?

Stewart Willis

During retirement, you want to relax and enjoy the years you have less. You don’t want to worry about running out of funds. When a recession hits, people panic because they experience slower financial growth than expected. This might make you wonder, “Is my annuity safe in a recession?”

You will undoubtedly question whether your retirement plans are enough to help you live the life you want.

Annuities often emerge as a beacon for those seeking stability because it’s a guaranteed income stream in retirement. This makes them undeniably attractive, particularly when economic downturns loom on the horizon. Let’s explore if annuities are safe in a recession and how you can make the best choices for your future.

What Happens to Annuities During a Recession?

Broadly speaking, the average person may refer to an economic downturn as a “recession.”

Are annuities safe in a recession? It depends. An annuity is a contract between you and an insurance company. You invest a lump sum or regular payments.

In return, your insurer promises you a reliable income stream. What happens to an annuity during a recession depends on the exact terms of your contract and the type of annuity you have.

Are Variable Annuities Safe in a Recession?

Variable annuities can be a tricky investment option. Their main “benefit” is the opportunity to get higher returns, but they come with a higher degree of risk, especially during a recession. Your annuity's performance is directly linked to how the market fares. You will see ups and downs, and there's a chance it could drop when the market hits a rough patch.

Variable annuities are essentially mutual funds in an insurance wrapper with many of parasitic fees attached. If you're looking to invest in the market, it’s best to invest directly. You’ll avoid these extra costs that eat into your returns.

Annuities can come with conditions that manage volatility. Some companies may offer a 5% control to adjust positions during turbulent times. While the market saw significant growth last year, annuities with these controls couldn't fully capitalize on the upswing. When selecting an annuity, it's crucial to consider a flexible underlying index that can adapt to evolving market conditions.

Variable annuities can offer death benefits, but let's face it—you want your annuities to work for you while you're still alive. Guaranteeing value protections within the policy term ensures your investment serves you well throughout your lifetime. If you want security, a fixed annuity may be a better option for you, but it still depends on your financial circumstances.

Are Fixed Annuities Safe in a Recession?

Fixed annuities can provide a stable safety net during a recession because they offer a guaranteed interest rate. You can count on a consistent income stream no matter how the market behaves. This makes them an appealing choice for retirees who value security over high returns. They protect against the potential decrease in buying power that inflation can bring about, especially in an unstable economy.

Interest Rates and Annuities

Interest rates are pivotal when purchasing an annuity contract. The interest rates greatly influence the payout of fixed annuities at the time of purchase. When interest rates are high, fixed annuity payments usually increase, making them a more enticing option during times when rates are on an upward trend. On the flip side, when we're in a period of low interest rates, the payouts might not look as attractive.

Consider this: when interest rates are low, you refinance your home, but when interest rates are high, you refinance your retirement.

If you're feeling the pinch of high-interest rates impacting your returns, it might not be a reflection of your product's quality. If you purchased an annuity before a recession, you might experience meager gains. The issue could stem from purchasing during a period of low-interest rates. Now presents an opportune time to reassess your annuity contracts and consider transitioning to a new one that aligns better with the current interest environment.

What Is the Biggest Risk Associated with Annuities?

One of the major risks involved with annuities is the potential to end up with a subpar contract or invest in low-interest-rate products. Buying poorly performing insurance products can significantly impact your financial goals. This is where having a financial advisor becomes crucial, as they can guide you toward making informed decisions that align with your best interests.

Hand holding a nest with a golden egg

Getting the Advice You Need About Annuities During a Recession

Finding a financial advisor who truly has your best interests at heart is crucial, especially when considering the safety of annuities during a recession. Your advisor should be proactive in assessing your financial situation and ensuring that you are getting the most value for your money. Don't settle for subpar service.

Demand more or seek out an advisor who is willing to go the extra mile for you. With proper guidance and attention to liquidity, annuities can be a secure investment option even in challenging economic times.

Whether you are in a low-interest environment or a high-interest environment, it's crucial to understand the context of our current situation. Your financial advisor will assist you with this, guiding you through such scenarios and providing insights to help you make informed decisions regarding your retirement and financial well-being.

Should I Get an Annuity During a Recession?

During an economic downturn, the promise of a fixed annuity's guaranteed income becomes quite appealing. It is a buffer against market fluctuations, offering financial stability and peace of mind. Locking a long-term contract with a guaranteed fixed interest rate in today's high-interest environment can be smart.

By securing a safe and stable rate, you ensure better returns on your annuity over time. It's all about making your money work harder for you in the long run. The team at Asset Preservation Wealth & Tax can provide tailored guidance, helping you chart a course that aligns with your retirement aspirations and risk tolerance. We want to ensure your golden years are as secure and fulfilling as you've envisioned.

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Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company; not guaranteed by any bank or the FDIC.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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