June 13, 2022
Question: What is a fixed annuity?
Answer: A fixed annuity (not to be confused with a fixed-indexed annuity) has two initial components:
Premium (the amount of money you contribute)
Fixed interest rate, for a fixed period of time
Depending on the annuity there may be “free-withdrawal” amounts and “surrender periods.”
Free-withdrawal amounts allow you to take a certain amount of the premium money each year, without a penalty. This would be in addition to the interest earned.
Surrender period is the length of time you need to hold the annuity without any penalty for withdrawing the premium.
You can later elect to “annuitize” a fixed annuity, which moves it from the asset bucket to the income bucket. When something is annuitized, you can base it on a single life expectancy or joint life expectancy.
You can also elect to have a set number of years written into the payout, for example we often see Single-Life with a 10-year guarantee. This means that if something should happen to you in that 10-year window, the annuity will continue to pay your beneficiaries for the remaining 10-years; if you’ve already received 10-years of payment, the payments cease.
Who is this product good for? Someone who is more concerned about principal preservation than growth or inflation.
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