Annuities have become a staple in the modern world of retirement planning, often viewed as a safe way to invest capital and secure a steady stream of income in your retirement years. But not all annuities offer the same level of protection: Safety varies by product type and market exposure. 

Economic conditions — especially recessions and changes in interest rates — impact annuities, equities, and other investments. Still, certain options, including annuity contracts, provide added layers of protection to help limit your downside risk. 

This article answers the question, “Are annuities safe during a recession?” We highlight the key risks to look out for, the types of annuities that are better suited for recessionary environments, and strategies for adjusting your plan accordingly.

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Are annuities a safe investment during a recession?

Most investors have lived through a major recession, prompting many to investigate how different investing and retirement options — including annuities — perform during downturns. 

To determine how safe an annuity is, first consider the type. Fixed annuities provide stability and safeguards against the loss of funds but have limited growth potential. Variable annuities have greater market exposure — with premiums invested in subaccounts similar to mutual funds— meaning you could face substantial losses during times of volatility. 

Annuity safety during a recession also depends on the underlying insurance company that issues the contract. Guarantees are backed by the issuing insurance company so it is important to ensure they are stable. 

Are annuities affected by the stock market?

A common question among investors during a recession is whether annuities are affected by the stock market. As noted above, the answer depends on the type of annuity: 

Fixed annuities

This type isn’t tied to the stock market. Instead, it offers a guaranteed, fixed interest rate, allowing your principal contribution to grow typically tax-deferred until withdrawal. This provides predictable interest growth regardless of market conditions. When asking if fixed annuities are safe, the answer is generally yes. 

Fixed-indexed annuities

If you want a balance between guaranteed interest and tax-deferred growth, fixed-indexed annuities offer a middle ground. They track market indices like the Nasdaq but enforce caps or limits on the amount you can earn, limiting your upside potential. When markets head south, these annuities limit losses through buffers, or floors, shielding your principal from the worst of the bear market conditions. 

Variable annuities

These insurance investment contracts are directly tied to market performance, placing them among the most volatile of annuities. Variable annuities invest in subaccounts, which are similar to mutual funds. This can provide exposure to stocks, bonds, and other securities. While they offer higher growth potential, they also carry significant risk during market declines, which can reduce payouts or erode the value of your account. 

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Key risks during a recession and how to protect yourself

When a recession hits, investors search the internet, wondering, “Are annuities safe right now?” To answer the question, consider key risks to watch out for when investing in an annuity, especially during a market downturn. 

Issuer risk

Annuities are only as secure as the insurer behind them. While a rare occurrence, if the insurance company issuing your annuity fails, your contract may be at risk. To protect your investment, research and only choose highly rated insurers. AM Best, Fitch Ratings, and Moody’s are good resources to use to evaluate an insurer’s financial stability. 

Inflation risk

When it comes to annuities, inflation risk is the threat that the payouts you receive in retirement will lose their ability to cover your living expenses, which can negatively impact your quality of life. For example, if you were receiving an annual payout of $1,000, that same $1,000 annual payout will likely be able to afford less in the future due to inflation. 

Fixed annuities offer stability, but may not keep pace with inflation, which erodes your purchasing power over time. For that reason, consider annuities with cost-of-living adjustment (COLA) riders, which adjust payouts to account for inflation. Fixed-indexed annuities offer growth potential tied to market performance, which can help offset inflation. But indexed annuities may see less growth than fixed annuities during extreme market drawdowns. 

Early withdrawal penalties

Recessions force many investors to make early withdrawals from their retirement accounts to cover lost income, which often result in penalties. Early withdrawals from annuities can trigger surrender charges, which can cost upwards of 10% of the investment. Withdrawals from retirement accounts before the age of 59½ may also be subject to a 10% IRS tax penalty, in addition to regular income tax. Before making a decision that could lead to a rapid decline in your wealth, consult with a financial advisor to explore your options. 

Choosing the right annuity and provider, like Gainbridge, can reduce your risk exposure and help ensure a secure income in your retirement years. We offer a suite of annuity options, including fixed and fixed-indexed annuities, and our licensed representatives are ready to help you navigate all market conditions.

Why Gainbridge fixed annuities offer dependable safety

Gainbridge is a modern, digital-first annuity provider focused on security and simplicity for low-risk investors. Our products feature benefits, like: 

• Fixed interest rates, not tied to markets 
• Principal protection
• Flexible terms 
• Backing from highly rated insurers
• Transparent fees and digital access

During times of economic uncertainty, Gainbridge has annuity products designed to help you meet your retirement goals, while also shielding your principal contribution from the next major market downturn. Explore Gainbridge today to see how our suite of products and customer service team members can help give you peace of mind in retirement. 

This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.