Understanding Fixed Annuities

Having enough money for the retirement lifestyle you want is usually best accomplished by using all the financial tools at your disposal. Your retirement plan and IRA can provide the foundation for that nest egg. Another tool you may want to consider is a fixed annuity.

What is a Fixed Annuity?

A fixed annuity is a contract issued by a life insurance company under which you give the insurance company a sum of money and the insurance company guarantees to pay you periodic fixed amounts over time. The earnings within the annuity accumulate on a tax-deferred basis until you begin to receive withdrawals. 

Withdrawals are subject to regular income tax and the IRS imposes a 10% penalty tax if funds are withdrawn before age 59 ½. There are also annuities that offer payouts beginning immediately. Variable annuities are somewhat similar but offer no return guarantees. 

Fixed annuities offer the benefit of tax deferral and come with the guarantee of the insurance company. Be sure to investigate all of the details before signing up. Compare the rates, understand all the charges, and make sure the insurance company is financially sound.