Fixed Annuities

A fixed annuity is a contract between you and your life insurance company that's designed to provide tax-deferred growth as well as income for you, either for your lifetime or a specified period of time. A fixed annuity offers you a current interest rate on premiums you contribute to your policy, along with a guaranteed minimum rate for the life of the policy.

Typically, the current rate is higher than the guaranteed minimum. Your money accumulates and compounds tax-deferred, and you have several income options when you're ready to receive payments from your annuity (e.g., a lump sum, over a specified period of time, or even for the rest of your life).

A fixed annuity is generally a low-risk product for people who want to know how much they'll be earning. Because you earn a rate of return that's fixed for a particular period, there's also no need to worry about the day-to-day fluctuations of the investment markets.

Fixed annuities have two phases, the accumulation phase, when the money grows tax-deferred, and the distribution or payout phase, when you decide how you want to withdraw your money. During the accumulation phase, you're basically investing money in the annuity, either through one lump sum or flexible payments over a period of time.

During the distribution or payout phase, you withdraw your money based on the best option for you. Options include a lump sum withdrawal, in which your earnings are taxed all at once, a regular income payment schedule, which doesn't necessarily mean you won't outlive your money, or guaranteed income plans or annuitization, in which you cannot invest any more money in your annuity, and the issuing company begins paying you a regular income based on your contract value.