What Is a Fixed Annuity?
A fixed annuity is one of the safest ways to grow your retirement savings and create guaranteed income. Here's how they work and who they're best for.
How a Fixed Annuity Works
A fixed annuity is a contract between you and an insurance company. You make a lump-sum payment (or series of payments), and the insurance company guarantees a fixed interest rate for a set period — typically 3 to 10 years. At the end of the term, you can renew, withdraw, or convert to income payments.
Guaranteed Interest Rate
The defining feature of a fixed annuity is the guaranteed interest rate. Unlike a CD or savings account, the rate is locked in for the full term regardless of what happens in the market. Current fixed annuity rates can be competitive with CDs and often exceed them.
Tax-Deferred Growth
Interest earned in a fixed annuity grows tax-deferred — you don't pay taxes on the growth until you withdraw the money. This allows your money to compound faster than in a taxable account. Fixed annuities are often used to supplement IRAs and 401(k)s.
Guaranteed Income Option
Fixed annuities can be converted into a guaranteed income stream — either for a set period or for the rest of your life. This is called annuitization. It provides the security of knowing you'll never outlive your money.
Who Should Consider a Fixed Annuity?
Fixed annuities are well-suited for conservative savers who want guaranteed growth without market risk, retirees looking for predictable income, and people who have maxed out their IRA and 401(k) contributions. AG Insurance can compare fixed annuity rates from multiple carriers.
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