Fixed Annuities

What is a Fixed Annuity?

Fixed annuities are insurance products that provide a guaranteed interest rate for a specified period of time. The rates are typically based on the current interest rate environment. It is designed for accumulation and growth.

Why would a client need a Fixed Annuity?

  • Fixed annuities provide a safe investment vehicle for clients looking to grow their savings on a tax deferred basis
  • This is a great option for a more conservative investors or for those that are looking to diversify into more stable investment options
  • Fixed annuities can be a great alternative to bank CDs because there’s often times better rates

How best to approach/sell to your clients?

  • Fixed Annuities can be an important part of a diversified retirement portfolio. Because the rate of return is fixed, based on the current interest rate environment, it would be considered a non-correlated asset to more volatile assets (ex: stocks & mutual funds) and can ensure that the retirement asset is protected even when there are downturns in the market.
  • Fixed Annuities have the option to “annuitize” their contract or turn the asset into an income stream guaranteed for life.
  • If your client is over the age of 72, most fixed annuity contracts are flexible to allow for Required Minimum Distributions (RMD).

Who fixed annuities may not be a good fit for

  • Clients with Liquidity Needs – fixed annuity contracts have surrender charges and only allow a small portion (commonly 10% – 15%) for penalty free withdrawals. Anything over that threshold, the client could incur surrender charges. Some contracts also include Market Value Adjustments (MVA) which could additionally affect the surrender value of the contract. Clients that would need access to more than those surrender free amounts may not be suitable candidates for fixed annuities.
  • Clients who need access to funds prior to 59 ½ – because fixed annuity contracts defer tax growth, any surrender of these contracts prior to age 59 ½ could result in a 10% penalty.

Benefits of Fixed Annuities

  • Tax-deferred growth
  • Guaranteed interest earnings
  • Access to clients’ money (usually)
  • Protection from market ups and downs
  • Guaranteed beneficiary benefit that avoids probate