Fixed Annuities

A fixed annuity is purchased with one lump-sum payment or several periodic payments, depending on the type you choose. The value of the annuity grows at a set interest rate as defined by your contract. The guaranteed interest rate feature protects against the risk of market losses during times of volatility, but also limits the potential for higher gains. And while you’re saving for retirement, you’re earning interest on what you’d otherwise pay in taxes.

Once you’re ready to use your fixed annuity, you can choose how you’d like to receive your payout. You’ll have the option to get retirement income payments for a set number of years, for the rest of your life, or in one lump-sum payment. Once you start receiving your retirement income payments, they will be subject to income tax.

Keep in mind that if you need to access a portion of your funds before retirement, you may only be able to access a portion of your funds without a surrender penalty.

That depends on many factors including your age, financial goals, retirement plans, the amount of risk you’re comfortable taking on, and how long you expect to live.

If you’ve maxed out your allowed Roth IRA or 401(k) contributions but would like to keep building your retirement portfolio, a fixed annuity might be worth considering. Knowing you're getting a guaranteed return—and a future income stream—can help build your confidence in your overall retirement strategy.

You can use a fixed annuity as a foundational component of your retirement strategy. Because a fixed annuity has a fixed interest rate, you’ll know exactly how much income it will provide. And having a reliable source of income could help inform other aspects of your financial strategy.

For example, you might feel comfortable taking on other investments with higher risk when you’re confident that your fixed annuity income payments are guaranteed, regardless of how the market performs.

Fixed annuities tend to pose less financial risk than variable annuities and other investment products whose values rise and fall with the market. But that doesn't mean they come with no risks at all.

You will know in advance how much you’ll receive from your fixed annuity, but you can’t predict the rate of inflation. Some payouts don’t get cost-of-living adjustments, so their buying power decreases over time. However, some payout options do adjust their income payments for inflation—or they offer that optional feature.

As with most annuities, if you want to withdraw money from your fixed annuity before the surrender charge period ends, you may incur a penalty charge—which could be hefty.

Finally, annuities are insurance contracts. That means their payouts are guaranteed by the insurance companies that issue them—not the FDIC, SIPC or any other federal agency. Look for firms with high marks from objective industry rating agencies such as AM Best, Fitch, Moody’s and Standard & Poor’s.