What is a fixed income annuity (Fixed Annuity)?What are the advantages and disadvantages, and which type of people are suitable?

Fixed income annuity (Fixed Annuity), an important part of U.S. dollar retirement savings plans and household assets.

This type of annuity product provides us with a financial savings method that protects the principal, guarantees an annualized rate of return, and enjoys tax benefits.at insurRetire©️ Retirement Academy'sMr. Annuity"The column will help consumers understand,The basic operating principles of fixed-income annuities, its advantages and disadvantages, and the applicable people.

Fixed-income annuity (Fixed Annuity): high-profile version of fixed deposit

Fixed income annuity (Fixed Annuity), yesAnnuity contracta kind of.After we deposit a lump sum of premiums with the annuity insurance company, the annuity insurance company promises to pay us a fixed annual return no matter how drastic the market or external environment changes.

The stage of paying fees to the fixed-income annuity account is called the "accumulation period", and the stage of taking money from the annuity account is called the "distribution period".Fixed-income annuity products are mainly issued by commercial insurance companies, in insurRetire©️Retirement CollegeIn the column, we also shared,The central governments of various countries are the largest annuity insurance issuers, which are used to provide endowment insurance for their citizens.

For fixed-income annuities, the most vivid analogy is,It is a super deluxe version of fixed deposit(Supercharged Certificate of Deposit)—— Annuity account holders have determined a fixed rate of return at the moment they purchase deposits, and this rate of return is often much higher than that of CDs.

Use annuity insurance to save a pension account for yourself

After purchasing a fixed-income annuity, when we reach the age of retirement, we can receive a fixed amount monthly or yearly as a pension.We can choose to receive a lifetime, or we can choose to receive the length of time we want, such as 10 years, 20 years or 30 years.During this contract period, the insurance company needs to pay us this amount of money all the time.

Using a fixed-income annuity is equivalent to saving yourself a retirement financial account for yourself.When it is time to receive it, we receive a fixed amount of money from the insurance company every month, just like receiving salary income, which becomes our monthly income.

Since the monthly income is fixed, this way of using a fixed annuity for the elderly can help us effectively manage family expenditures and budgets.

The advantages of fixed income annuity (Fixed Annuity)

• simple.Compared with other types of annuities, the biggest advantage of fixed-income annuities is simplicity.We can easily compare terms and prices to find the product that best suits our needs.In contrast,Indexed and security annuities are more complex and come with a variety of other costs and risks. Although index annuities and securities annuities have their own advantages, fixed-income annuities win out from the perspectives of the clarity and simplicity of contract terms.
• The return is guaranteed.When we sign a contract to purchase a fixed-income annuity, the insurance company will guarantee us the lowest return on investment within the validity period of the contract.The rate of return of a fixed annuity is usually higher than the interest from a CD or savings account, thereby reducing the risk of obtaining a higher return.Unlike a CD or savings account,Fixed annuities are not covered by federal FDIC insurance, but by reinsurance companies and the states. Although the annuity is reinsurance through other means, But should be given priority when purchasingAn insurance company with a healthy financial situation, sufficient capital reserves, and a relatively good reputation.
  
• Quantitative and predictable.Since the income of a fixed-income annuity is fixed, we can predict future income figures, making it easier to plan for the financial situation after retirement.For securities annuities and index annuities, our actual income depends on different investment performance.We can earn more (or less), but with these two types of annuities, we cannot clearly understand our future income.

Disadvantages of fixed income annuity (Fixed Annuity)

• Smaller income growth ability.Although fixed-income annuities can avoid the loss of investors caused by the market decline, butThe cost of "drought and flood protection"Yes, in the good years of market conditions, the fixed-income annuity has a fixed rate of return, which may be lower than the rate of return of securities annuities and index annuities.
• The guaranteed rate of return may eventually change.Annuity insurance companies usually provide a guaranteed fixed rate of return during the contract period. After the end of the period, the insurance company will continue to pay you interest.But the return on contract renewal may decrease, Depending on the contract terms of the annuity.
• Inflation may affect returns.In years of high inflation, fixed-income annuities may not be able to outperform inflation.Although we can choose inflation adjustmentadditional termsTo reduce this loss, but the use of Rider,May reduce our first withdrawal amount.
• Withdraw from the annuity account before the age of 59.5, face a 10%Early withdrawal of fines.

(3 steps to purchase annuity insurance ©️ Credit: TurboTax)

Who is suitable to buy a fixed income annuity?

• Pursue stable and predictable income,Groups unwilling to take any market risk
• Because of health problems, cost and other factorsGroups unable to apply for life insurance
• I hope to have a long-term stable income after retirement,Groups planning retirement income plans in advance
• Hope for 401(K)s, 403(b), IRAs and other accountsGroups of funds looking for retirement income channels to transfer risks
• Over 45 years old
• Groups that allocate low-risk products to their household portfolio

Article summary

Commercial annuity insurance is a strong complement to the national pension insurance of governments of various countries. It provides a powerful option for us to build a global dollar retirement plan and build our own pension income "safe".