Fixed Annuities

Who Should Buy an Annuity?

Anyone concerned about potentially outliving their assets and income should consider annuities due to the guaranteed lifetime payout available upon Annuitization. A major concern of retirees is that their savings will run out before they die, leaving them with Social Security as the sole source of guaranteed income. By investing in a Fixed Annuity, the purchaser can count on having an additional payment on top of Social Security. The retiree who invests in an annuity for guaranteed income is buying financial peace of mind to enjoy retirement with less financial stress. With a portion of assets allocated to a Fixed Annuity, a retiree also may feel comfortable putting other assets into more aggressive investments.

Fixed Annuities offer more than just peace of mind via a guaranteed income stream. Here are examples of how the purchase of a Fixed Annuity can be used to meet a specific financial goal:

1. MYGA (Multi-Year Guaranteed Annuity) in place of a multi-year Bank Certificate of Deposit (CD)

A conservative investor has a Bank CD invested with after-tax (non-qualified) money and it is maturing soon. As of July 2021, the investor looks at new CDs and sees the annual interest credited is about .8% for a three-year CD and 1.0% for a five-year CD. These interest rates are unlikely to keep up with yearly inflation. Rather than buy a new CD, the investor decides to purchase a MYGA from a strong insurance company. The MYGA interest rate available (guaranteed for the full term) is about THREE TIMES the CD interest rate (e.g., 3.0% for a MYGA with five-year rate guarantee compared to 1.0% for a five-year CD).

An additional advantage of purchasing the MYGA is that interest credited to the contract is not taxed prior to the time funds are distributed. This is different from the tax treatment of multi-year Bank CDs, under which accrued interest is reportable and taxable each year as the CD investment grows.

2. Rollover of a 401K plan (or a portion thereof) into a FIA (Fixed Indexed Annuity)

An employee has been funding a 401K plan with a company matching contribution for many years. The plan is invested entirely in equities and has performed well, particular over the last decade. The employee at time of retirement appreciates the past performance of equity investments, but also feels a need to reduce overall investment risk to protect existing net worth. As a solution, a portion of the Qualified 401K assets are rolled over without tax consequence into a FIA contract. The new annuity participates in the upside performance of selected equity index(es); but the contract value does NOT decline (i.e., it has full downside protection) when the underlying index declines. The retiree has achieved peace of mind having the opportunity to participate in market growth but without risk of losing money.

3. Hybrid Annuity/Long Term Care (LTC) policy to address the risk of needing expensive LTC services

A healthy couple previously considered Long Term Care Insurance but opted not to buy as they did not like the 'use it or lose it' nature of standalone LTC coverage. The couple is still concerned that high LTC costs could hamper their retirement and estate plans, so they learn about Hybrid Annuity/LTC policies. Under the Hybrid policy design, the contract value is leveraged up to three times value for payout over time if Long Term Care services are needed. In addition to this leveraging, all distributions made for Qualified LTC expenses are entirely tax-free. They choose to buy Hybrid Annuity/LTC coverage; and if neither of them ever needs LTC services, the contract with interest growth passes to their beneficiaries.

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.

Back to Top | Back to Fixed Annuities Home

• 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