A fixed annuity is a financial product issued by an insurance company. It minimizes tax liability, while allowing tax-deferred growth of assets. At retirement, a fixed annuity can provide a guaranteed income stream for one or more people, in specified amounts, for a specified period or for life. 1,2
There are basically two types of fixed annuities: a fixed deferred annuity and an immediate fixed annuity. A deferred annuity may be purchased with a lump sum (single premium), or through a series of premiums. Each premium earns a guaranteed interest rate for a specified period - usually one, three, five or six years. An immediate annuity is purchased, generally at or near retirement, by lump sum and is immediately converted into a series of income checks paid monthly, quarterly, semi-annually or annually. Income payout is based on a guaranteed, fixed interest rate. 2
Why would you want one?
Because you want a financial product with predictable growth and stable performance with no stock market volatility. You want a secure retirement income that is not dependent upon circumstances beyond your control. You know that Social Security alone might not provide the retirement income you'll need to maintain your standard of living or cover your monthly expenses. Your employer-sponsored retirement plan could miss the mark as well. A fixed annuity may help fill the resulting income gap.
Fixed annuities appeal to those seeking to defer tax liabilities; who want to offset or avoid the risk and uncertainty of stock market based investments, such as individual stocks or mutual funds. Fixed annuities also offer a way to preserve a rollover from an employer-sponsored retirement plan and lock in a guaranteed interest rate. 2
What's more, by offering simplified asset transfer to your named beneficiary upon your death, an annuity can eliminate the inconvenience and cost of probate.
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- Withdrawals of taxable amounts from annuities are subject to ordinary income tax and, if taken prior to age 59 ½, a 10% IRS tax penalty may apply. Withdrawal charges may also apply.
- All guarantees (principal lifetime income and interest rates) are subject to the claims-paying ability of the issuing insurance company.