Fixed annuities are annuities that offer a guaranteed fixed rate of return from funds that are primarily invested in government securities and high-grade corporate bonds. Interest rates on fixed annuities are typically higher than interest rates provided by CDs, Money Market and traditional savings accounts and contractually guaranteed for a fixed period of time from 3 to 10 years. In most cases up to 10% of your account value can be withdrawn without surrender penalty. You may still be subject to an 10% IRS penalty if you withdraw funds on tax deferred investements before age 59 1/2 depending on how you withdraw the funds. Fixed annuities can earn substantially more compounded interest than CDs, money markets and even mutual funds.
Fixed annuities are ideal for individuals wishing to have a retirement income that is not susceptible to market volatility. The fixed annuity guaranteed rate of return gives retirees the peace of mind in knowing the distribution period will provide a steady monthly income stream along with safety of principle and a predictable return on investment.
Fixed Annuity Product Names
All annuities are typically referred to by a generalized product name that represents the core features of the annuity contract. Referring back to the timing of the annuity funding and the deferred annuity type, we can label fixed annuities in one of three ways.
- MYGA – Multi-year Guarantee Annuity (CD Annuity)
- Single Premium Deferred Fixed Annuity
- Flexible Premium Deferred Fixed Annuity
- Single Premium Immediate Fixed Annuity
In the Immediate Annuities section of this site, we covered the payout options available for the immediate annuity and illustrated that the payout for an immediate annuity is usually based on a fixed payment over a specified period of time. The term that is typically used to describe an immediate annuity os Single Premium Immediate Annuity (SPIA). The “Fixed” term in the generic product name above just describes the fixed nature of the payments.
Is a Fixed Annuity Right for You?
Below are some considerations that may help you determine if a fixed immediate annuity is right for you.
- You want guaranteed growth on your funds
- You’re looking for a no risk investment
- You want flexibility and control in the event of unforeseen financial needs
- You’re looking for fixed income to pay living or other expenses or to fund a specific period of financial need