What is a Fixed Amount Annuity?

Shawn Plummer

CEO, The Annuity Expert

What is a Fixed Amount Annuity?

A fixed-amount annuity is a financial product typically used for retirement savings or income. It involves an individual paying a lump sum or a series of payments to an insurance company. In return, the company provides a steady stream of payments for a specified period or for the lifetime of the annuitant (the person receiving the payments). These payments are predetermined and do not change, hence the term “fixed amount.”

How Does a Fixed Amount Annuity Work?

  1. Initial Investment: You pay a lump sum or make periodic payments to the annuity provider.
  2. Accumulation Phase: Your money may earn interest during this period, depending on the annuity’s terms.
  3. Distribution Phase: After a specified period, the annuity provider starts making regular, fixed payments to you.

Examples

  1. Lifetime Annuity: You receive a fixed monthly payment for life, regardless of how long you live.
  2. Term Certain Annuity: You receive payments for a specific number of years, e.g., 20 years.

Benefits and Drawbacks

Benefits

  • Predictable Income: Provides a steady and predictable source of income.
  • Security: Good for risk-averse individuals who prefer stability over high returns.

Drawbacks

  • Inflation Risk: Fixed payments may lose purchasing power over time due to inflation.
  • No Investment Growth: The payments are fixed and do not benefit from potential higher returns from market investments.

Comparing Fixed Amount Annuity with Variable Annuity

FeatureFixed Amount AnnuityVariable Annuity
PaymentsFixed and predictableVaries based on investment performance
Risk LevelLowHigher, depends on market
Inflation AdjustmentNonePossible, if investments perform well
SuitabilityRisk-averse individualsThose comfortable with market risk

Conclusion

Fixed-amount annuities offer a secure and predictable income, ideal for individuals seeking stability in their retirement years. While they protect against market volatility, they also come with the risk of inflation and do not offer the potential for investment growth. Understanding your financial goals and risk tolerance is key in determining if a fixed amount annuity is suitable for you.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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