Guide to Fixed Annuities
The following is an easy to read Guide to Fixed Annuities and Fixed Index Annuities.
What is a Fixed Annuity?
Fixed Annuities are interest-based products designed for retirement savings. They are somewhat similar to CDs, but unlike CDs, they are issued by insurance companies, not banks. Fixed Annuities typically require a lump sum initial deposit that locks in an interest rate ranging from 3% to 5% for a term of 3 to 10 years. This initial deposit is called a “premium” and can be as little as $5,000 or as much as $3,000,000.
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Fixed Annuities are considered to be a very low-risk product, are tax-deferred, can have a variety of liquidity options, and can offer higher yields than other “safe” investments such as money market accounts, bonds, treasuries, and CDs.
Fixed Annuities most commonly offer two payout scenarios. The first is a Single Premium Immediate Annuity (SPIA) and the second is Deferred Fixed Index Annuity, aka DIA, FIA, and EIA.
An Immediate Annuity (SPIA) will immediately provide you monthly payments and continue until you die or for a specific period of years (Period Certain). It is designed to provide guaranteed income that you cannot outlive. In a Deferred Fixed Annuity the premium compounds interest on an annual basis. The payments from a Deferred Fixed Annuities generally are greater because the entire initial principal and all interest has the benefit of time to compound and grow.
A very popular feature of Fixed Index Annuities is the lifetime income rider option. This feature allows you to receive guaranteed monthly income payments for the rest of your life. The ability to convert your savings into a guaranteed lifetime payment that you cannot outlive makes Fixed Index Annuities a very desirable choice versus other retirement investments where the lifetime payment benefit does not exist.
Typical Features of a Fixed Annuity
Extremely Low Risk – Your money is not subject to market losses and can only be lost if the insurance company becomes insolvent AND your investment is above the Annuity State Guarantee limits. Note: Insolvent insurance companies are extremely rare and there has never been a single occurrence of an annuitant losing their money in a Fixed Annuity.
Guaranteed Rate – Your interest rate is locked in and guaranteed for the agreed on the term of the Annuity.
Lifetime Income – Adding an income rider to your Fixed Index Annuity will provide you guaranteed monthly payments for the rest of your life. This is an essential feature to help plan your retirement and ensure you do not run out of money.
High Interest Rate – 3% to 6% returns on a very low-risk investment.
Single Premium Option – The initial investment funds the Fixed Index Annuity; you can not make additional deposits into the Annuity.
Flexible Premium Option – The initial investment funds the Fixed Index Annuity and you have the option of adding additional deposits into the Annuity.
Flexible Terms – Fixed Annuities are available for short-term, mid-term, and long-term savings. Fixed Annuities are typically 2-10 years in length. The longer the term will normally offer a higher interest rate.
No day-to-day worry – Once your initial deposit in the Annuity is made, you begin receiving your monthly payments (Immediate Annuities). You do not have to manage the day-to-day performance of your Annuity, nor worry about market losses reducing your initial deposit.
Optional Life Insurance – Life Insurance can be added to some Fixed Annuities to provide an enhanced death benefit to your heirs.
Unlimited Contributions – Non-Qualified Fixed Annuities do not limit your contribution amounts like 401Ks and IRAs.
Estate Planning – Fixed Annuities can be passed on to your heirs and avoid probate.
Multi-Year Guaranteed Annuity (MYGA)
A Multi-Year Guaranteed Annuity (MYGA) is similar to a CD in that it guarantees your interest rate for the entire term of the Annuity. The growth is always compounded and is always tax-deferred.
Fixed Annuity Growth
Fixed Annuities provide guaranteed growth as long as you own your Annuity. A Fixed Annuity is tax-deferred, so it will compound interest without being subject to annual taxes and will usually outgrow other annually taxed safe investments such as money market accounts and CDs. In many cases, a Fixed Annuity will outperform a mutual fund but do so without the downside risk of loss.
To see how a Fixed Annuity compares to other investments, please click here.
Find The Best Fixed Annuity For Your Needs
The key to finding the best product in any category is shopping around and comparing products, Fixed Annuities are no different. By comparing multiple insurance company offerings, you can find the best interest rate offers at that time. Never limit your choices to just one insurance company. No one company offers the best-fixed Annuity products all the time. Chose an experienced and independent licensed Annuity Advisor who can show you Fixed Annuity products from multiple insurance companies. Also, keep in mind that the longer Fixed Annuity term you choose, the better interest rate you will be offered.
Since purchasing any retirement product is a serious decision, we suggest you speak to a licensed Annuity expert. They can help you make an informed decision and show you how a Fixed Annuity can fit into your overall retirement plan. AnnuitySeeker can help connect you with a licensed Annuity Advisor in your area. We work with a nationwide network of independent Annuity Advisors who are not tied to one insurance company and will give you a no obligation look at various Fixed Annuity products from the nation’s top-rated insurance companies.
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How Do Fixed Annuities Fit Into My Overall Retirement Strategy
Smart investing at any age includes a strategy of diversification. A safe option like Fixed Annuities, mixed with high risk-reward investments like stocks, and rounded out with CDs, mutual funds, IRAs, and the like, will put you on a path to a successful retirement.
Fixed Annuity Shortfalls
As with all investment choices, Fixed Annuities are not for every situation. For example, if you require immediate liquidity of your deposit without being subject to withdrawal fees, a Fixed Annuity may not be right for you. Click here to learn more about the shortfalls of a Fixed Annuity.
Beware Before You Buy a Fixed Annuity
When selecting a Fixed Annuity, it is important that you shop multiple insurance companies and compare products. You will want to look out for any hidden fees, strict withdrawal schedules, and how long your rate is actually guaranteed (full term or partial term). You should also feel comfortable with your licensed Annuity Advisor. Never hesitate to ask for your advisor’s license number and feel free to contact your state insurance licensing board to check the status of his or her license. An advisor free of derogatories means they conduct their business with honesty and integrity and usually can be trusted.
Is a Fixed Annuity Right For Me?
A Fixed Annuity is a viable investment choice for those looking for steady guaranteed growth. Fixed Annuities may not have the large upside growth potential compared to investments tied to the stock market, but they provide a great investment option for those individuals who require interest rates better than standard savings accounts and CDs but want to avoid the risk associated with market investments. Fixed Annuities are also a perfect retirement product for those individuals who have at least 5-10 years to allow their money to work for them untouched. Finally, the Fixed Annuity income rider is an excellent option for those individuals looking to receive guaranteed monthly income payments for the rest of their life.
To find out exactly how Fixed Annuities can fit into your overall retirement strategy, allow AnnuitySeeker to connect you to a licensed Annuity specialist in your area.
