Fixed Annuities

Should I Be Considering A Fixed Annuity?

The top five attributes baby boomers say they want in their financial products are all attributes that fixed indexed annuities will deliver: stable standard of living, guaranteed income for life; guaranteed not to lose value; protection against market downside; low-maintenance; stable and predictable.

Thankfully, when the S&P 500 lost 41 percent of its value between 2000 to early 2003 and again lost 51 percent between October 2007 and February 2009, FIA (Fixed Indexed Annuities) owners did not experience this loss.  However, over 10 years, the S&P has averaged 3.16 percent. And even with a historically low rate environment, in that same period, FIAs have averaged 5.74 percent, according to a recent comprehensive study of FIAs by the Wharton School of Business.

Rates change and crediting methods vary, products differ from one to the next, but the underlying chassis of the FIA allows consumers to benefit from a portion of the market’s growth while protecting them from the market’s declines. While it is true that FIAs will not mirror the market’s growth, conservative growth that is isolated from market loss can outperform a volatile stock market. You can elect to have lifetime income and still ensure that your entire annuity amount will be paid to heirs.

It is often said that hindsight is 20-20. If we can learn about the future from a clear look at the past, what does the last 10 years of the stock market tell you about where your money should be for the next 10 years? 

What Are Fixed Annuities?

Fixed annuities are interest-based vehicles similar to bank-issued CDs, but geared specifically towards retirement savings. Typically, a lump-sum of cash locks in an interest rate ranging from 3% to 10% for a period of 3 to 15 years. The initial deposit or premium, can range from $5,000 to $1,000,000.

Fixed annuities are very low risk, have more liquidity than CDs, are tax-deferred, and typically offer higher yields than bonds, CDs, treasuries, or money market accounts.  Most fixed annuities also feature a lifetime income option — allowing you to convert accumulated savings into a guaranteed monthly income for the rest of your life. This feature is highly desirable to many retirees and sets annuities apart from other types of retirement investments.

Performance

You can expect solid, guaranteed growth from an investment in a fixed annuity as long as you don't terminate prematurely. In the case of deferred fixed annuities, tax-deferral is going to add up and compound, earning substantially more than a CD, money market account, or even a mutual fund. 

Types of Fixed Annuities

Immediate Fixed Annuities start issuing monthly payments right away, until the initial premium plus interest gets paid out.

Deferred Fixed Annuities don't pay out until the end of their term, compounding interest like a typical retirement savings account. 
 
CD type annuities are CD/annuity hybrids. They function just like regular fixed annuities except for the scope of their guaranteed rate. 

Deciding What Fixed Annuity Is Best For You

The key to buying a high-yield fixed annuity is shopping at a time when interest rates are high. Moreover, if you can handle a longer term (10+ years), you can get a much better rate. Of course, high-yield isn't always what's best. The best annuity is one that's right for your financial position, and in this case the key might be finding balance between a high rate and flexible terms. There's always a trade-off: the longer the commitment, the less flexibility, the higher the rate. 

Who Should Buy A Fixed-Annuity?

Fixed annuities are ideal for retirees or those wary of market volatility. Although potential for windfalls is limited compared to variable annuities, the fixed annuity's guaranteed rate-of-return beats many other investment vehicles. Fixed rate annuities are well suited for conservative investors or retirees who need steady monthly income. 

Purchasing an annuity is a decision no one takes lightly. One can find a lot of information online, but prudent investors should discuss all their options and risks with an independent financial advisor. Contact Jeanine for a personal consultation to find out available rates and what choices are right for you.

Fixed Annuity Features

  • Single Premium — One up-front payment and that's it. Future investments require purchase of a new annuity.
  • Guaranteed Rate — Contract locks in a fixed interest rate for x number of years, like a CD.
  • Very Low Risk — Money can only be lost if the insurance company becomes insolvent and your investment exceeds Annuity State Guaranty Limits.
  • Retirement Income — Ideal source of secure monthly retirement checks. Retire with peace of mind and steady growth.
  • 3%-10% Return — Solid returns for essentially no-risk investment. Better than CDs, especially at longer terms.
  • Lifetime Income — An optional lifetime provision guarantees paychecks for life. No worries about outliving your retirement savings.
  • 1-10 Year Term — Fixed annuities are available for short, medium, or long terms. Longer terms yield higher rates.
  • Hassle Free — No micromanagement. Sign the contract, pay the premium, receive paychecks for life.
  • Life Insurance — An optional life insurance provision offers death benefits to loved ones. Save money by foregoing a separate life policy.
  • Unlimited Contributions — Invest as much as you want, buy as many annuities as you like. Unlike a 401(k) or IRA.
  • Inheritance — Bequeath money to loved ones probate-free. Avoid estate/death taxes.
  • Inflation Hedge — Beat inflation and then some. CDs and money market accounts barely cover CPI.
  • Tax-Free Gifts — Gift up to $10,000 per individual, per year, tax-free. Gift money to an unlimited number of individuals.

*Fixed Annuity features may vary.
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