Fixed annuity Products. What they are and how they work.

A fixed annuity contract is a retirement tool in which the insurer agrees to make periodic payments to you, beginning either immediately or at some future date while offering a guaranteed minimum interest rate on your purchase payment(s) for a certain period of time.

What are the benefits of purchasing a fixed annuity?

A fixed annuity can be an important financial tool for your retirement plans. Here’s why:

Competitive interest rate guarantees – Fixed annuities generally have competitive interest rates compared to other financial products for long-term savings.

Tax-deferred growth – For individual purchasers, income taxes on the earnings in a fixed annuity are not payable until the money is withdrawn from the contract.

Guaranteed lifetime income – A fixed annuity offers lifetime income guarantees upon annuitization. These assurances are not found in other financial products.

Favorable withdrawal provisions – Many fixed annuity products allow up to 10 percent of the value of the contract to be withdrawn without surrender charges. Tax penalties may apply depending upon the age of the contract holder. (Generally, a 10 percent tax federal penalty applies to withdrawals prior to age 59½.)

No up-front sales charges – The contract value upon which interest is credited, is not reduced by sales charges. The contract value is reduced by surrender charges on early withdrawals.

Avoidance of probate – In the event of the annuitant’s death, proceeds can pass directly to a named beneficiary without incurring probate expenses or possible delays.

Optional riders – Optional riders may be available to personalize your annuity.

Fixed Annuity Types

Income annuity – An immediate annuity is purchased with a one-time payment and provides an immediate stream of income for a specified period of time.
Deferred annuity – With a deferred annuity, payments are made over time for a long term goal, such as retirement. Over the years, your money has the potential to accumulate tax deferred. Withdrawals providing an income stream begin in later years.

Who needs a fixed annuity?

A fixed annuity might be right for you if you are looking for a way to protect your principal and receive a guaranteed rate of return.

There are two phases to a fixed annuity: accumulation (pay in) and annuitization (pay out).

Accumulation – Pay in – During the accumulation phase of your annuity, you accumulate interest on the contract based on your purchase payment amount and the rate guarantee period you selected.
Annuitization – Pay out – Payments may be either level or increasing periodic payments, and may be set up for either a set amount of years or for the life of one or two people. When it’s time to begin receiving income, you make the choices depending on what your needs are at the time.

Fixed Annuity 101 – Common Annuity Terms and Questions