Fixed Annuities

Buying a Deferred Annuity for Accumulation or Guaranteed Income

Purchasers of Deferred Annuities (whether they are Fixed or Variable) typically are seeking to accumulate funds over time, which is helped by the favorable federal tax treatment given to annuities.

Purchasing Annuities for Accumulation

Risk-tolerant investors seeking growth without guarantee of invested principal often purchase Variable Annuities, which are invested directly into equities and other securities. These investments perform well over long time horizons but are unpredictable and can experience declines at any time. Therefore, conservative investors (and those with limited time horizon) should avoid purchasing Variable Annuities.

For investors seeking both growth and safety, Fixed Annuities are an excellent option due to contractual guarantee of the principal amount invested and interest credited. Upside growth potential will vary with the type of Fixed Annuity purchased, but in all cases investment losses are avoided.

Conservative investors may find the most suitable annuity type to be Multi-Year Guaranteed Annuities (MYGAs) since the investment return is known in advance. MYGAs are easy to understand, as they have a stated interest rate guaranteed for the entire contract period. MYGAs are structured like Bank CDs, with key advantages of tax deferral of interest earned and much higher market rates (as of July 2021).

Opportunities for greater investment growth may be found in Fixed Indexed Annuities (FIAs), which base investment returns on participation in the performance of a selected Index such as S&P 500. Unlike direct investment in equity or bond markets, FIAs are protected against investment losses. In exchange, only a portion of growth is credited to the Annuity contract when the Index increases in value.

Purchasing Annuities for Lifetime Income

Some FIA contracts also offer lifetime income riders, which guarantee to provide periodic income for lifetime. The amount of income is higher the longer the contract holder waits to begin payments. Lifetime income riders state the guaranteed values at time of purchase, so future income is known.

Adding a lifetime income rider provides the valuable benefit of having access to a known guaranteed lifetime income stream, but it comes at a cost of lower growth of the annuity contract value that might otherwise be cashed out at the end of the surrender charge period or passed on as a death benefit.

A good candidate for a lifetime income rider is a healthy pre-retiree who is concerned about a shortfall in income vs. expenses after retirement. Existing assets could be rolled over without tax consequence into an annuity with lifetime income rider, providing a new income stream that once triggered lasts for lifetime. For someone in poor health, adding a lifetime income rider may not be the optimal solution.

Further information on Fixed Annuities may be found by clicking on the links below. If you would like a consultation or a product illustration, please Contact Us or Request a Custom Quote.

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• Who Should Buy an Annuity?
• Options for Taking Annuity Payments (Annuitization)
• Annuity Charges and Fees
• Buying a Deferred Annuity for Accumulation or Guaranteed Income
• How Fixed Annuities Can Be Used to Cover the Long Term Care Risk