Fixed Annuities

What is a Fixed Annuity?

Fixed annuities are insurance products which protect against loss and offer fixed interest rates for a guaranteed period of time. The rates are typically based on the current interest rate environment. This type of annuity is designed for accumulation and growth.

Why would a client need a Fixed Annuity?

Many people use annuities to help their retirement savings grow and to create protected income that can help cover essential expenses and contribute to a more enjoyable retirement. Any growth in the account is on a tax-deferred basis while still retaining some control of money.

Essentially, by purchasing a qualified longevity annuity contract, you can defer the distribution of a portion of your qualified assets beyond 72, reducing your RMDs until a later date.

Who needs it?

Someone looking for a safe alternative to a bank CD that will earn a higher interest rate and no fees. A fixed annuity offers investors a predictable return on the money they invest.

How best to approach/sell to your clients?

Annuities can be an important part of a diversified retirement portfolio because they can ensure that retirement income is protected even when there are downturns in the market. So no matter how other retirement investments perform, annuities can provide a source of protected lifetime income that few other financial products can offer. There are also many companies friendly to RMD requirements.

Where it might not always apply?

If full access to all the monies in the annuity is desired, this would not be a good fit as there are limits to the penalty-free withdrawals allowed per year, if any. Also, there are several companies that allow only a 30-day window to withdraw funds at the end of the guaranteed period before a new surrender schedule locks in with renewal at the current market rate. If you withdraw your funds early, you’ll pay a surrender fee, the fee associated with the fund itself, as well as a 10% tax penalty on any funds that are withdrawn before age 59 ½, since it’s a tax-deferred annuity. This is in addition to the income tax on gains earned.

Things to consider

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