Should You Buy an Annuity in 2026?

Annuity sales have surged in recent years, and 2026 is shaping up to be another record-breaking period. Industry group LIMRA projects total annuity sales could exceed $450 billion this year, continuing a trend driven by high interest rates and growing demand for guaranteed retirement income. With MYGA yields near 15-year highs and uncertainty in the stock market, many people are asking: is now a good time to buy an annuity?

The answer depends on your age, income needs, risk tolerance, and overall financial plan. This article walks through the current rate environment, the types of annuities that are most attractive right now, the people who stand to benefit the most, and the situations where waiting or choosing a different product makes more sense.

The Current Rate Environment

Fixed annuity rates are closely tied to the broader interest rate environment, particularly the yields on long-term government and corporate bonds. After years of near-zero rates, the Federal Reserve raised rates aggressively starting in 2022 to combat inflation. While the Fed began easing in late 2024, rates remain elevated compared to the previous decade.

As of early 2026, the best 10-year MYGA rates sit at approximately 7.65%, and the best 5-year MYGA rates are around 6.30%. These are significantly higher than what was available from 2012 through 2021, when top MYGA rates rarely exceeded 3.50%. For people who remember earning 1.5% on their annuities just a few years ago, today's rates represent a dramatic improvement.

The key question is whether these rates will last. If the Federal Reserve continues cutting rates in response to slowing economic growth, annuity rates will likely follow. Locking in a high rate now could prove advantageous if rates decline over the next year or two. On the other hand, if inflation resurges and the Fed holds rates steady or raises them, current rates could look less impressive in hindsight.

Market Conditions Favoring Annuities

Several factors beyond interest rates make 2026 a potentially good year for annuity purchases. Stock market valuations remain elevated after a prolonged bull run, and many financial analysts caution that future equity returns may be lower than the past decade's averages. For retirees or near-retirees who cannot afford a major market downturn, shifting a portion of their portfolio into a guaranteed product reduces sequence-of-returns risk.

Inflation, while lower than its 2022 peak, remains above the Fed's 2% target. Fixed annuities provide a known return that you can plan around, even if they do not directly adjust for inflation. Knowing exactly how much your money will grow over 5 or 10 years can be valuable for retirement budgeting, especially when other parts of the economy feel uncertain.

Additionally, the growing popularity of annuities has led to increased competition among insurance carriers, which benefits consumers. More companies are offering higher rates and more flexible contract terms to win business. Surrender periods are shorter, free-withdrawal provisions are more generous, and minimum purchase amounts are lower than they were a few years ago.

Who Should Consider Buying Now

The people who stand to benefit the most from buying an annuity in 2026 generally fall into a few categories. First, retirees who need a predictable income stream and want to lock in today's high SPIA payout rates. A 65-year-old purchasing a single premium immediate annuity today can receive significantly higher monthly payments than the same person would have gotten in 2020 or 2021.

Second, pre-retirees in their 50s and early 60s who want to build a conservative portion of their retirement portfolio. A 5- or 10-year MYGA purchased now at 6% to 7%+ will mature right around the time they enter retirement, providing a guaranteed sum of money regardless of what the stock market does in the interim.

Third, high earners who have maxed out their 401(k) and IRA contributions and want additional tax-deferred growth. Non-qualified annuities have no contribution limits, making them one of the few remaining ways to shelter investment gains from annual taxation. In a high-rate environment, the tax-deferral advantage becomes even more valuable because there is more interest to defer.

Fourth, people who hold large amounts of cash in savings accounts or money market funds and want a better rate. While high-yield savings accounts have offered competitive rates recently, those rates can drop at any time since they are variable. A MYGA locks in the rate for the full term, providing certainty that a savings account cannot match.

Who Should Wait or Choose Something Else

Annuities are not the right product for everyone, regardless of how attractive the rates look. If you are under 59 and a half, any withdrawal of gains from a non-qualified annuity will trigger a 10% IRS early withdrawal penalty in addition to income tax. For younger savers, maxing out a 401(k), IRA, or HSA first almost always makes more sense.

People who do not have an adequate emergency fund, typically three to six months of living expenses in an easily accessible account, should not tie up money in an annuity. Surrender charges can be steep if you need to access the funds early, and the combination of surrender charges plus the IRS penalty can significantly erode your returns.

Investors with long time horizons and high risk tolerance may also want to stay invested in equities. Over periods of 20 years or more, the stock market has historically outperformed fixed-rate products. A 30-year-old saving for retirement in 35 years will likely accumulate more wealth through a diversified stock portfolio than through a fixed annuity, even at today's elevated rates.

Finally, if you expect to need Medicaid in the near future, buying an annuity could complicate your eligibility. Medicaid has strict asset and income rules, and a poorly structured annuity purchase could be treated as a disqualifying transfer of assets. Consult a financial advisor who specializes in Medicaid planning before purchasing an annuity in this situation.

Best Annuity Types for 2026

Multi-year guaranteed annuities (MYGAs) are the clear standout for 2026. They offer the highest guaranteed fixed rates, simple and transparent terms, and no exposure to market risk. A MYGA works like a CD issued by an insurance company: you deposit a lump sum, earn a guaranteed rate for a fixed term, and receive your money back at maturity. The key advantages over a CD are the higher rate and tax-deferred growth.

Single premium immediate annuities (SPIAs) are also compelling in 2026. A SPIA converts a lump sum into a guaranteed monthly income that starts within 30 days of purchase. Because payout rates are tied to interest rates, today's SPIAs offer significantly higher monthly payments than they did a few years ago. A SPIA is an excellent tool for covering essential expenses in retirement, such as housing, food, and insurance premiums, because the income is guaranteed for life.

Fixed indexed annuities (FIAs) may also be worth considering if you want some upside potential linked to a stock market index while still protecting your principal. However, FIAs are more complex, with caps, participation rates, and spread fees that limit your returns. They are best suited for people who understand these features and want a middle ground between a pure fixed rate and direct market exposure.

Risks and Considerations

Even in a favorable rate environment, annuities come with risks and trade-offs you should understand before committing. The biggest risk for most people is illiquidity. Surrender charges during the early years of the contract can be substantial, and the IRS early withdrawal penalty adds another layer of cost for people under 59 and a half. Make sure you are comfortable locking up your money for the full surrender period.

Inflation risk is another factor. A fixed annuity pays the same rate regardless of what happens to the cost of living. If inflation rises sharply during your contract term, the purchasing power of your annuity's returns decreases. For this reason, financial advisors often recommend against putting all of your retirement savings into fixed annuities. A diversified portfolio that includes some equities and inflation-protected securities can help offset this risk.

Opportunity cost is also worth considering. If you lock in a 7% rate today and rates rise to 9% next year, you are stuck with the lower rate until the surrender period ends. While no one can predict future rates, this is a real possibility in an environment where the Federal Reserve's path is uncertain. A laddering strategy, where you spread purchases across multiple terms, can help mitigate this risk.

Finally, remember that annuity gains are taxed as ordinary income when withdrawn, not at the lower capital gains rate. For people in high tax brackets, this can reduce the after-tax return compared to a taxable investment account where long-term gains are taxed at 15% or 20%. Consult a tax professional to understand how annuity taxation compares to your other options.

A Decision Framework for 2026

To decide whether an annuity makes sense for you in 2026, start by asking yourself a few key questions. First, do you have an emergency fund and adequate liquid savings? If not, build that first. Second, have you maximized contributions to your 401(k), IRA, and HSA? These accounts generally offer better tax benefits than a non-qualified annuity. Third, are you at least 59 and a half, or will you be by the time you need the money? If not, the IRS penalty may make an annuity less attractive.

Next, consider how much of your portfolio you want to keep in guaranteed, fixed-rate products versus market-linked investments. A common guideline is to keep enough in guaranteed products (Social Security, pensions, annuities) to cover your essential living expenses, while leaving the rest invested for growth. This approach ensures that your basic needs are met regardless of market conditions.

Finally, shop around. Annuity rates vary significantly between carriers, even for the same term length. Use an independent agent or online comparison tool to find the best available rate from a highly rated insurer. Do not settle for the first quote you receive.

The bottom line: 2026 is an unusually good time to buy a fixed annuity if you are the right candidate. Rates are near 15-year highs, competition among insurers is fierce, and the product landscape offers more choices than ever. But an annuity is a long-term commitment, and it is not the right tool for every financial situation. Consult a financial advisor to evaluate how an annuity fits into your overall retirement plan before making a purchase.