Advantages of a Fixed Rate Annuities

The Fixed Annuity is an interesting insurance vehicle for the conservative or risk averse client.  The behavior of a Fixed Rate Annuity is often compared to that of a CD.  The advantages of a Fixed Annuity are generally more favorable for those that wish to accumulate long term, are looking for safety from market risk or have already reached or are nearing retirement age.

Following are some of the advantages of Fixed Annuities:

Tax Deferral

Annuity earnings grow tax deferred until withdrawn, reducing your current taxes and allowing your money to grow faster. This is an added benefit if you are in a lower tax bracket when retirement income payments begin.

Protection of Principal

Unlike other investment vehicles, the principal of the account is protected from downward loss.  Variable annuities, securities and other investments can lose value.  The Fixed Annuity has a fixed interest rate, independent of market downturns.

Fixed Interest Rate

A Fixed Annuity guarantees a fixed interest rate for a specific period of time.  A minimum interest rate is guaranteed for the life of the contract.

Opportunity to Annuitize

One of the more obvious features of an annuity, the opportunity to annuitize, shouldn’t be overlooked.  Distributions can be spread out over a set period or may continue for the life of the annuitant and beneficiary.

Credit Protected (depends)

In some states and depending on the vehicle, the Fixed Annuity is probate and creditor protected.  In protected states it can also be protected against frivolous lawsuits.  This again provides another level of security for the annuity.

Lifetime Payout Provisions Possible

Worried about outliving your income?  The Fixed Annuity can be established to provide a guaranteed income for the life of the annuitant and beneficiary.  This again provides safety and peace of mind.

 Not Vulnerable to Market Volatility

Can you say “recession buster”?  Because of the fixed rate nature of the annuity, the investor need not worry about account values during periods of recession.

Access to Money

Most annuities allow withdrawals at least once annually (usually up to 10% of the contract value) without a withdrawal or surrender charge.  Monthly withdrawals of interest and free withdrawals for special needs such as confinement to a nursing home are also widely available.

 Estate Planning

A beneficiary receives the annuity’s entire account or contract value upon the death of the annuitant.  Provided the annuity is properly structured, your beneficiary can avoid the delays, expense and publicity of probate.

 Retirement Boost

If you’re taking full advantage of employer plans and IRAs, a Fixed Annuity’s combination of unrestricted contributions and tax deferral can be a retirement boost.  In addition, non-qualified annuities do not require you to take distributions at age 70-1/2, allowing your money to continue compounding.

 Guaranteed Income

Only an annuity issued by an insurer offers retirement income guaranteed to continue for as long as you –or you and your spouse – live.


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