Fixed Annuity

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Learn more about fixed-income annuities

A fixed annuity, also known as a fixed-income annuity or a fixed-index annuity, is a great way to supplement your income into retirement because it can provide regular payments, tax benefits, and, potentially, a death benefit. Fixed annuities are relatively low-risk investment options, and our annuity company is more than happy to talk with you in-depth about how a fixed annuity could fit your needs. You can purchase your fixed annuity with either a lump sum of money or with a series of payments over time. Leveraging a fixed income annuity can help you build a sound retirement income plan and can help build and sustain retirement income. Learn more about fixed income annuity benefits and contact Annuity Genius today to get started.

What is a Fixed Annuity?

A fixed annuity is a fixed-income investment offered by an insurance company. They provide investors with a safe rate of return and a guarantee of principal on a tax-deferred basis. For investors’ peace of mind, fixed annuities are backed primarily by government securities and high-grade corporate bonds. The underlying bond portfolios are managed as part of the insurance company’s general account. Investments can grow with taxes deferred until a withdrawal is made from the policy, at which point taxes are paid on the withdrawn portion.

Benefits of Fixed Annuities

tax-deferred annuity
guaranteed rate of return
potential withdrawal without penalty
lump sum or periodic payment options

Multi-Year Guaranteed Annuities

Multi-year guaranteed annuities offer a guaranteed interest rate for a period of time that is locked in at the time the policy is set up. The guarantee period ranges from 1 to 15 years, while the surrender schedule (i.e., the time during which an investor may surrender the annuity, with a penalty) is typically 7 years, although this may vary from annuity to annuity. In plans with a different surrender and guarantee period, funds may be withdrawn without a surrender penalty during the window at the end of the guaranteed period.

Plans with guaranteed rates commonly come with a market value adjustment (MVA), which offers the potential for higher (or lower) surrender values. MVAs run the duration of the guarantee period, and may be either positive or negative. If interest rates rise, the MVA will be negative and the surrender value will decrease. If interest rates decline, the MVA will be positive and the surrender value will be greater. In some instances, a positive MVA can make the surrender value higher than the contract value.

Banded-Rate Fixed Annuities

Banded-rate fixed annuities may offer an interest rate that is guaranteed for the first year only, after which a renewal rate is applied. For example, a banded-rate annuity may offer 5% for the first year with a minimum of 1% for years 2-5. Needless to say, this makes it impossible for an investor to know the rate of return in advance of purchase. Banded-rate fixed annuities are designed to be highly attractive, promising high first-year fixed annuity rates, without explicitly revealing the blended rate over the entire life of the annuity—which may in fact be uncompetitive. Furthermore, banded-rate fixed annuities pay financial planners the highest commission—on average two to three times the commission awarded for multi-year guaranteed fixed annuities. For these reasons, potential buyers are advised to be cautious when considering this type of investment.

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Fixed Annuity

Learn more about fixed-income annuities

Benefits of Fixed Annuities

Fixed Annuity

Types of Fixed Annuities