Fixed Annuity

Fixed annuities provide a fixed payment at regular intervals to the annuity owner. They are one of several options available for those who want to invest in annuities. After funding the annuity the investment increases in value over the years. When distributions start the annuity owner receives the same income every month, regardless of market fluctuations. Fixed annuities offer low risk and are a good choice for conservative investors.

Fixed Annuity Summary

  • Interest rate for the accumulation period is fixed at time the annuity is purchased.
  • Can be purchased as a deferred annuity or immediate annuity
  • Total sales of fixed annuities were $76 billion in 2010.


Fixed Annuities versus Variable Annuities

Understanding the differences between fixed annuities and variable annuities helps you to choose the best annuity for you needs. A fixed annuity offers the same amount of income on a regular basis. Any changes in the stock market or currency market will not influence the monthly income distributions. Even if the underlying investment performs well, you won’t profit from it.

With a variable annuity the value of the investment depends on the performance of the underlying investments. Variable annuities fluctuate so the income distributions changes monthly. With variable annuities you have a chance to receive a higher distribution based on the movement of the markets unlike fixed annuities.

How Fixed Annuities Work

A fixed annuity is a contract between the annuity owner and the financial company that sets up the annuity. Over a period of time the annuity owner makes regular payments to fund the annuity. This is called the accumulation period. At a later date (usually at retirement age), the owner starts to receive fixed income on a regular basis. The income is derived from the underlying investments of the fixed annuity. These investments are often bonds or money market instruments.

Who Are Fixed Annuities Right Fox

Fixed annuities are good options for people who want to save more money for retirement. In many cases these are individuals in a high income bracket who have already reached the maximum contributions for their 401(k), IRAs or other qualified retirement plan. These annuity owners are often conservative and prefer the lower risk of fixed annuities that provide more stability.

Top Five Things to Consider When Choosing a Fixed Annuity

Top 5 things to consider when decided to purchase a fixed annuity

  1. A financially stable annuity issuer: Work only with financial companies that have excellent credit scores. Although there has never been a default on an annuity, it is still a good idea to only sign agreements with companies that have a good bottom line. If the company can’t manage its own finances, there will be doubt as to how well the company can manage your annuity.
  2. Fees: There are many fees associated with setting up annuities. The fees vary from company to company. Although fixed annuities have fewer fees than variable annuities, you should still shop around to find a stable company with low fees.
  3. Whether to buy and immediate or deferred annuity: Deferred annuities delay income distributions until a later date and offer growth for the long-term. Immediate annuity start providing an income soon after you set up the annuity. You can have a fixed deferred annuity or a fixed immediate annuity depending on your financial needs and goals.
  4. Payment amountWhen choosing a fixed annuity, most people want some idea of how much money they can expect to get each month once the distributions begin. Companies have a way to calculate projected payments based on a number of factors such as gender of annuity owner, life expectancy, amount of invested money and the type of investments used to increase the value of the annuity.
  5. Inflation: Inflation is an important concern with fixed annuities. As inflation increases it also decreases the value of your annuity. One way to remedy this is to add a rider to your annuity. This additional feature allows for cost of living adjustments to the annuity.

Fixed annuities are one option among many for people who want to save money for a future date. One advantage of fixed annuities is the low risk involved. The annuity owner gets a fixed amount of steady income. Fixed annuities are also less complicated than variable annuities and cheaper to maintain. They are a good choice for investors who prefer low risk.