Fixed Income Annuities: The Basics

Shawn Plummer

CEO, The Annuity Expert

What Is A Fixed Income Annuity?

A fixed income annuity ensures a consistent and guaranteed income stream for you—or both you and your spouse—by transforming a portion of your retirement savings into regular income payments, either for a lifetime or a specified duration.

Helpful Tip: Calculate your potential income with our fixed-income annuity calculator

Fixed Income Annuities

Not Annuitization: Clearing the Misconception

Many people mistakenly believe that fixed-income annuities and annuitization are the same. While both involve receiving payments over time, they aren’t identical.

Example: Consider annuitization, like converting your savings account into a monthly paycheck. On the other hand, a fixed income annuity allows you to maintain a balance that earns interest, and you receive payments based on the terms you’ve chosen.

The Power of Interest: Growing Your Investment

One of the most appealing aspects of fixed-income annuities is that your money doesn’t just sit; it earns interest. This interest accrual ensures that your savings grow over time.

Example: If your annuity offers an interest rate of 3% annually, that means for every $10,000 you invest, you’ll earn an additional $300 every year.

Fixed Annuity Income

Offers Liquidity: Access to Your Funds

Unlike some other financial products, a fixed-income annuity offers liquidity. This means you can withdraw some of your funds without terminating the contract.

Example: Suppose an emergency arises, and you need some extra cash. Certain fixed-income annuities allow you to access $5,000 without significant penalties or end the contract.

What Are Fixed Income Annuities

The Assurance of Lump Sum Death Benefit

Many fixed income annuities provide a lump sum death benefit in the unfortunate event of the annuitant’s death. This ensures that your loved ones aren’t left in a financial lurch.

Example: If a person passes away with $20,000 left in their annuity, that amount would be passed on to their beneficiaries.

Flexibility: Collect Income When You Need It

A fixed-income annuity offers unparalleled flexibility by allowing you to control your income stream. You can choose to activate or pause the income payments based on your needs, and if circumstances change, you even have the option to cancel the contract altogether. This adaptability stands in contrast to annuitization, which typically locks you into a fixed payment schedule without the provision for such adjustments.

its flexibility: Emma, a retiree at 65, chose a fixed income annuity to supplement her retirement. When she unexpectedly inherited money two years later, she paused her annuity payments, letting her funds grow while using her inheritance for daily expenses. A year on, she resumed payments to fund an overseas trip. Later, at 70, she even contemplated canceling her annuity but chose not to, appreciating its flexibility compared to traditional annuitization.

Protection from Stock Market Losses

Your money in a fixed-income annuity is protected from stock market losses. This gives you peace of mind, knowing that your annuity remains unaffected even in tumultuous economic times.

Example: If the stock market crashes and investors lose 40% of their portfolio’s value, a fixed-income annuity holder would still receive their guaranteed income without any reduction.

Consistent Lifetime Income

The beauty of a fixed-income annuity is that the lifetime income stays the same or increases but never decreases. This predictability is priceless, especially in uncertain times.

Example: If inflation causes living expenses to rise, certain annuities can increase the payouts, ensuring you’re always covered.

Fixed Income Annuities: The Next Steps

Now that you know a little more about fixed-income annuities, it’s time to start thinking about how one can benefit you in retirement. A fixed-income annuity may be suitable if you like having a guaranteed income stream for the rest of your life. Many types of fixed-income annuities are available, so be sure to research and find the one that best suits your needs. And if you have any questions, our team at The Annuity Expert is always here to help. So contact us today for a quote.

Fixed Income Annuity

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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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