Fixed Annuities: Secure Guaranteed Retirement Income

Did you know? For a 65-year-old couple, there’s a 50% chance that at least one spouse will live past the age of 93. Besides Social Security, do you have any other retirement income solutions that guarantee lifetime income? Annuities serve as the cornerstone of financial security in retirement, as they are the only plans that guarantee a lifetime income you can’t outlive.

Why Fixed Annuities? Guaranteed Returns and Lifetime Income

• Guaranteed Rates of Return: One of the primary benefits of fixed annuities is their guaranteed interest rates. The interest is typically higher than what you receive from CDs. Also, unlike CDs, annuities benefit from tax deferral.
• Guaranteed Lifetime Income: Fixed annuities can provide a steady income stream for the remainder of your  lifetime. Among all retirement plans, only annuities offer a guaranteed lifetime income.
• Flexibility of Income Payout: Instead of receiving a lifetime income, you can choose to withdraw money as you wish or establish a regular income stream for a specified period, such as 5, 10, or 20 years.
• Principal Protection: Fixed annuities offer full protection of your account from market downturns. Your initial investments and all interest earned in prior years are protected from market volatility.
• Tax Deferral: The growth in fixed annuities is tax-deferred, which means you won’t have to pay taxes on the interest earned until you start receiving payments.
• No Contribution Limits: Unlike other tax-advantaged retirement accounts such as IRAs or 401(k)s, there are no annual contribution limits for annuities. This feature enables you to transfer funds from your CDs and other retirement savings vehicles into an annuity. By doing so, you can take advantage of tax deferrals, higher interest rates, and other unique benefits that only annuities offer to retirees.
• Customization: Fixed annuities can be tailored to meet your specific needs, offering options like riders for long-term care, inflation protection, and more. For more information on different types of riders, Contact Our Annuity Experts or visit our Annuity Riders Blog.

Immediate vs. Deferred Fixed Annuities: Matter of Timing Your Retirement Income

• Immediate Fixed Annuities: With an immediate fixed annuity, you make a one-time lump-sum payment to the insurance company. In exchange, the insurance company starts making payments to you right away, typically within one payment period (usually a month). These payments can either be fixed or structured to increase annually to potentially keep pace with inflation. The duration of the payments can range from a specific period (e.g., 10 years), last for your lifetime, or continue until both you and a second annuitant, such as your spouse, have passed away. Many people opt for immediate annuities as a means to secure guaranteed income during retirement.
• Deferred Fixed Annuities: When you purchase a deferred fixed annuity, the payments from the insurance company don’t start immediately. Instead, your invested money grows tax-deferred during a “deferral period” that can span several years. After this period concludes, the insurance company begins its regular payments to you. The annuity payments can either remain fixed or be structured to increase annually to keep pace with inflation. Deferred annuities serve both as a savings mechanism during the deferral period and a means to secure guaranteed income later in life when the payments kick in.

Fixed Annuities vs CDs: The Smarter Choice for Retirement Income

• Rates of Return: Although both fixed annuities and CDs offer guaranteed rates of return, fixed annuities generally pay higher interest rates because of their long-term nature.
• Taxation: Interest on CDs is taxable in the year it is earned, regardless of whether you withdraw the funds. In contrast, fixed annuities offer tax-deferred growth. This tax deferral can lead to faster savings growth and eventually a higher income stream.
• Income for Life: Unlike CDs, which simply mature after a set period and then must be renewed or cashed out, fixed annuities can be converted into a stream of income for specified durations, such as 10 or 20 years, or even for life.
• Penalties for Early Withdrawal: While both fixed annuities and CDs impose penalties for early withdrawals, annuities typically allow you to withdraw up to 10% of your savings annually without incurring charges. Over time, annuity surrender charges decrease and eventually vanish after a set number of years. In contrast, CDs usually have a consistent penalty that remains in place each time the CD is renewed.

Fixed Annuities vs Index Annuities: Which is Better for Your Retirement?

If you value the guarantees of fixed annuities but also seek the potential for higher interest rates like those of stock mutual funds in your IRA or 401k, then index annuities might be a suitable option for you. Having been in existence for several decades, they’ve become very popular. They allow for the allocation of annuity funds to indices such as the S&P 500. They combine many of the guarantees associated with annuities, including protection from market downturns, with the potential for the higher interest rates that stock indices can provide.

Fixed Annuities Characteristics:

• Fixed Interest Rate: Fixed annuities have a fixed rate of return, typically specified in the contract at the time of purchase.
• Lower Risk: Because the rate of return is guaranteed, fixed annuities present a lower risk to the investor.
• Simple Interest: Interest is calculated and credited either annually or monthly based on the initial investment.
• No Market Participation: Returns on fixed annuities are not tied to any market index. The interest rate is fixed and does not fluctuate with market performance.
• Stability: A fixed interest rate ensures income stability, making it more predictable.
• Best for conservative investors: Fixed annuities are often preferred by those who are risk-averse and seek consistent, guaranteed returns.

Index Annuities Characteristics:

• Variable Interest Rates: The interest rate received in index annuities is tied to the performance of specific market indices, like the S&P 500, causing the rate to vary over time.
• Higher Potential Return: Due to the potential growth of indices, these annuities are expected to yield higher interest than fixed annuities.
• Market Participation: Although index annuities are not directly invested in the market, their returns are linked to market performance. This offers the potential for higher growth during strong market periods.
• Account Value Protection: Index annuities guarantee the protection of your principal and all interest earned in prior periods. Your account value is “locked-in” and protected from market downturns. These annuities have a floor that prevents negative returns due to market downturns. However, in weak market conditions, the return could be as low as zero, but it will never be negative.
• Best for moderate risk-takers: Index annuities are often preferred by individuals willing to take on a slightly higher risk for the potential of receiving higher interest compared to fixed annuities. The primary risk is that in some years, you might receive no interest.

For more information on index annuities, Contact Our Annuity Experts, or visit our Index Annuities page.

Hybrid Annuities: Combining the Best of Fixed and Index Annuities

Another option is hybrid annuities. As the name suggests, hybrid annuities are a blend of fixed and index annuities. They can provide you with a guaranteed income stream, with the possibility for that income to increase throughout retirement based on the performance of the allocated indices.

• Secure Income Stream: Hybrid annuities, like fixed annuities, can be set up to provide an income stream for a set time span, such as 5, 10 or 20 years.
• Guaranteed Lifetime Income: They can also be set up to guarantee a lifetime income stream that you and your spouse cannot outlive.
• Market-Linked Growth: Hybrid annuities offer a rate of return that is tied to a specific market index, such as the S&P 500. If the index performs well, your account is credited with interest corresponding to that performance.
• Principal Protection: Like fixed and index annuities, hybrid annuities are fully protected from market downturns and will never experience negative returns.
• Income Can Increase Throughout Retirement: The income stream can increase based on the performance of the indices to which the funds are allocated. However, it will never decrease. Any increase in the income level establishes a new baseline income. Once again, the new baseline is guaranteed to never decrease but has the potential to rise further if the indices your funds are allocated into perform well.
• Peace of Mind: With hybrid annuities, you have the assurance of knowing what income you are guaranteed to receive throughout your retirement, with that income having the potential to increase, but never decrease, to keep up with inflation.

Rollover Your Existing Retirement Plan to an Annuity

You can roll over your existing IRA/401k, Pension Plan, CDs and Mutual Funds into a fixed, index or hybrid annuity. To learn more about the benefits of rolling over your existing plan, click on the appropriate link or Contact Us to speak with an annuity specialist.

Start Your Journey to a Secure Retirement with Trusted Solutions from Annuity Emporium

Why settle for just one or two options when you can choose from dozens of the best? At Annuity Emporium, we aren’t restricted to a single insurance company. We offer you a carefully-chosen range of highly-rated fixed, index, and hybrid annuities from industry-leading providers—each tailored to meet your unique retirement goals.

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