When you're browsing the menu of retirement options, "risk" is the word that usually makes people reach for the antacids. In most investment vehicles—think stocks, ETFs, or mutual funds—you are the one in the driver's seat. If the market hits a pothole, your account balance takes the hit.
But the fixed annuity is a different beast entirely. It’s one of the few places in the financial world where you can effectively "delegate" your stress. So, who bears all the investment risk in a fixed annuity? The short answer: The insurance company.
The Insurance Company: The Ultimate Risk-Bearer
When you buy a fixed annuity, you aren't "investing" in the market in the traditional sense. You are entering into a legal contract. You give the insurance company a sum of money (your principal), and in exchange, they promise you safety of your principal and a guaranteed, fixed rate of interest.
The moment you sign that contract, the investment risk shifts from your shoulders to theirs. According to FINRA, the insurance company is legally obligated to pay you the rate they promised, regardless of how their own portfolio performs. If the insurance company takes your money and invests it in bonds that turn out to be duds, that’s their problem, not yours.
How Do They Do It (And Is It Safe)?
You might wonder: How can a company afford to take on all that risk? Insurance companies aren't gamblers; they are master mathematicians. They pool your money with thousands of other people and invest it into a "General Account." This account is typically filled with stable assets like high-quality corporate bonds and government securities.
They aim to earn a higher return on their investments than the rate they promised you. Even if their investments underperform, they must use their reserves to ensure you receive your agreed-upon payments.
What happens if the company goes bust?
Since the insurance company bears the risk, your primary concern is Counterparty Risk—the risk that the company itself fails.
- The Safety Net: To mitigate this, every state has a Life and Health Insurance Guaranty Association. As of 2026, if an insurer fails, these associations typically step in to cover annuity benefits up to a limit of $250,000 in present value, though this figure and applicable rules vary in some states, so check with your state's guaranty association.
- Pro Tip: Before buying, check the claims-paying ability of the insurer. You want a "risk-bearer" with an A or A+ rating.
The One Risk You Still Carry: Inflation
While the insurance company bears the investment risk, you still bear the inflation risk.
If your fixed annuity pays you a guaranteed 3% for the next twenty years, but inflation spikes to 5%, your "real" purchasing power is shrinking. As noted by Annuity.org, the insurer protects your dollars, but you are responsible for what those dollars can buy.
Comparison at a Glance
- Market Downturns: Borne by The Insurance Company
- Portfolio Underperformance: Borne by The Insurance Company
- Purchasing Power (Inflation): Borne by The Annuity Owner (You)
Fixed vs. Variable: A Study in Risk
To see how unique the fixed annuity is, look at the Variable Annuity. In a variable annuity, you choose "sub-accounts" (similar to mutual funds). If those funds go down, your account balance drops. In this scenario, you bear all the investment risk, not the insurer.
The fixed annuity is designed for the person who is done with rollercoasters. You trade "limitless upside" for a "guaranteed floor."
