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A fixed annuity provides benefits such as safety of principal, tax deferral, competitive interest rates and the opportunity to select the income for life payout option. In fact, only an annuity can guarantee predictable income payments the policyholder won’t outlive.1 You can even leave your annuity to a beneficiary, making it a valuable estate planning tool and bypassing the probate process. When the financial markets zig and the economy zags, it’s also important to have some protection from financial risks.
Technically, a fixed annuity is an insurance contract that offers a fixed rate of return. It is a long-term, tax-deferred vehicle that can be used as a retirement income solution. The interest earned grows in the account tax-deferred until you decide to withdraw the funds.2 The insurance company guarantees both earnings and principal.
How Do Fixed Annuities Work?
Fixed annuities have two phases — the build-up phase and the payout phase.
During the build-up phase, the time when you contribute money, the interest in your annuity will compound on a tax-deferred basis.2 The insurance company guarantees that your annuity will not earn less than a minimum renewal interest rate — regardless of market fluctuations. |
There are multiple payout options. You decide which option best suits you. During the payout phase, the time when you start receiving income, the amount of each income payment is generally set when the payments start and will not change. If you decide to take the money in the form of regularly scheduled payments (annuitize the contract), you can choose an option that provides guaranteed lifetime income. You also have the option to receive income payments for an agreed-upon term of years. |
1Annuitization required.
2 Withdrawals prior to age 59½ are subject to a 10% federal tax penalty.
Guarantees are backed by the claims-paying ability of Western National Life Insurance Company.