SIMPLE GUIDE TO ANNUITIES TOPICS
What Are the Different Types of Annuities?
In a fixed annuity, the insurance company agrees to pay you no less than a specified rate of interest during the time that your account is growing. The insurance company also agrees that the periodic payments will be a specified percentage per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.
Similar to a CD in that there is a defined term and interest rate. However, the fixed annuity has historically paid higher rates than the CD.
Pros of Fixed Annuities
- Nobody has ever lost their principal in a fixed annuity*
- Historically higher interest rates than CDs
- Tax-deferred growth
- Optional, guaranteed lifetime income
- Principal and growth available at term’s end
- Full accumulation at death
- Probate avoidance
- No fees for this type of annuity
*In rare cases where insurance companies fail, new insurance companies that have taken over have fulfilled all original obligations for policyholders.
Cons of Fixed Annuities
- Limited annual liquidity, typically 10%
- No market growth opportunity
- Early withdrawal penalties
- Limited opportunity for increase in income to fight inflation
Fixed Annuities Are Best For:
- Wealth preservation/transfer
- CD alternative
- Conservative investors