What is a Fixed Annuity?
An annuity is defined as a contract between an individual and an insurance company. The annuity can guarantee a set stream of income to the person on whose life it is based – also known as the annuitant – in return for either a lump sum deposit or periodic deposits over time.
There are different ways in which an annuity can be structured. This depends primarily on how the annuity is funded, as well as for how long. Because of this, annuity owners can have a lot of flexibility in the type of annuity they choose, and in how they have the income payout set up at the time they are ready to receive it.
Fixed annuities offer their holders a fixed amount of interest that is typically credited on an annual basis. The rate of interest is set by the issuing insurance company. These annuities provide safety of principal as their owners do not need to worry about market fluctuations.
The funds that are inside of a fixed annuity are allowed to grow on a tax-deferred basis. This means that there is no tax due on the gain of these funds until the time they are withdrawn – allowing them to grow and compound.
Fixed vs Variable Annuity
Although there are some similarities, there are also many differences between fixed and variable annuities. For example, unlike a fixed annuity, variable annuities do not offer guaranteed returns.
This is because the investor’s principal is invested inside of one or more “sub-accounts” that consist of stocks, mutual funds, and other types of investments. (Most variable annuities, however, will offer a sub-account that provides investors with a fixed interest rate option as well).
Because of this, variable annuities offer the opportunity for substantially more growth than fixed annuities. There is, however, also more risk.
If you’re interested in the possibility of higher returns than a fixed annuity, but you want no market risk you should learn about our index annuities.
Benefits of a Fixed Annuity
There are many benefits to owning a fixed annuity. First, the guaranteed rate of interest that is received by the owners of these annuities can oftentimes make a fixed annuity a safe alternative for producing retirement income. This can also make these vehicles appealing to those who are worried about stock market fluctuations.
In addition, because these types of annuities can provide a fixed amount of monthly income, they make it much easier to create a dependable retirement budget. Due to this stability, fixed annuities are typically well suited to those who want to ensure a set amount of ongoing income over time.
Where to Find the Best Fixed Income Annuity for You
There are numerous insurers that offer fixed annuities. However, working with an individual insurance carrier isn’t necessarily the best way to go when seeking the best fixed annuity rates. This is because you will be locked into the specific products, features, and interest rate quotes that only that one individual carrier offers.
A better alternative is to work with an independent insurance agent, like us. In doing so, we can provide you with a multitude of different options – including a variety of deposit and payout choices – so that you can then determine which will work best for you and your specific goals and needs.
Using a fixed annuity calculator can make it even easier to decipher how your future income will be paid out when you need it. So, contact us when you’re ready to move forward.
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