What is a fixed annuity?
Fixed annuities allow you to lock in a guaranteed rate of return for a predetermined period of time. At the end of this period, the insurance company may issue a new rate for the succeeding period. Additionally, the issuing company guarantees a return of the principal and rate paid into the contract. With these types of guarantees, a fixed annuity may provide a fixed and steady income during the payout phase. All guarantees are based on the claims-paying ability of the issuing insurance company.
A fixed annuity is the most common type of annuity. Basically, you give an insurance company a lump sum of money (either saved over a period of time or in one lump sum) and in exchange, the insurance company pays you a fixed income each month for a specific period of time. If you are doing a single premium immediate annuity (one lump sum payment of funds to the insurance company) the payments begin right away. If you are doing a single premium deferred annuity (monetary payments to the insurance company over a period of time, sort of a savings account, or can also be done as a lump sum payment) the payments begin at the date of your choosing (usually your retirement date) or a date chosen based on when your savings period is over. Fixed annuities are a great product to use as a tax-deferred investment or a way to have a lump sum of money converted into a steady stream of income. For fixed annuities, the monthly payments are the same throughout the term of the annuity, regardless of how
An annuity is a form of retirement income which provides a stable source of financial support, as it consists of returns on an investment which are paid on a regular schedule such as quarterly or annually. A fixed annuity, also called a flat or equal annuity, is a type of annuity which takes the form of consistent payments. A fixed annuity is more stable than a variable annuity, because the annuitant can be confident that he or she will make the same amount of money with each payment, but it is also not as flexible, because the return on an investment provided by a fixed annuity will not increase if the market improves. To establish an annuity, most individuals work with a firm or financial planner who will purchase the annuity. While the annuity is being set up, options including the length of the annuity and whether it will be fixed or variable are discussed. A financial planner can usually provide sound advice about the best type of annuity to choose, depending on the health of the
Fixed annuities are contracts with insurance companies that guarantee that you will earn a minimum rate of interest during the time that your account is growing. The insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse (source: SEC).
