Definitions: What are Fixed Annuities?
A fixed annuity is defined as a set amount of payments that are made at steady intervals over a specific period of time or until a certain event occurs.
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Fixed annuities can be compared to certificate of deposits with the below differences.
- Fixed annuities are not insured like CDs
- The tax implications of withdrawals are treated differently from CDs.
- Unlike CDs, gains generated by fixed annuities are tax deferred
Types of Fixed Annuities
There are two main categories of fixed annuities – a life annuity and a term certain annuity.
- A life annuity will pay the annuitant (owner) a predetermined amount each period until the annuitant passes away
- A term certain annuity pays a specific amount until the product’s term expires
Immediate vs. Deferred Payments Fixed Annuities
Additionally, fixed annuities can be either immediate, where payments begin immediately, or deferred, where payments are held until a certain period of time or age of the owner.
During the time payments are deferred, the balance has the potential to grow at a stated fixed rate.
Fixed annuities can be helpful in planning for current or future retirement income streams, as well as tax deferred growth on a guaranteed basis.
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