What is a Fixed Annuity and How does it Work?

A fixed annuity is a type of insurance contract that promises to pay the buyer a specific, guaranteed interest rate on their contributions to the account. With a fixed annuity, the insurance company guarantees both the rate of return and the payout to the investor. For example, if you purchased a fixed annuity at $175,000 earning 8% per year, you would then receive $1,167 per month.

“Fixed” might suggest the interest rate will never change, but it can change with time. The insurance contract will explain how and when this can happen. The interest rate is usually fixed for a number of years and then changes periodically based on economic conditions and current rates. The “fixed” part is that the insurance company agrees to pay you no less than a specific amount based on the rate listed in the contract.

One benefit from fixed annuities is that while you are accumulating assets in a deferred fixed annuity, your investment grows…taxed deferred. Another benefit is that it has predictability. The predictability is that it allows you to have a fixed income stream.

A fixed annuity can have payouts based on a specific period, such as 15 years or they can go for your lifetime or the lifetime of your spouse. You get to the determine the length of time when you purchase the fixed annuity.

Can you lose money on a fixed annuity? The short answer is no. You never lose money if you hold the policy to maturity and don’t withdraw early. Fixed annuities do come with risks however. There may be state guarantees in the event of an insurance company’s closure, but annuities are not guaranteed by any federal agency, like FDIC or SIPC.

There are lots more options; It’s best to find the one that will work for you and your expectations for your lifestyle. Call Advanced Insurance Concepts today and Jim Rooney will work with you to find the best insurance policy.