What Is a Fixed Annuity?

A fixed annuity is a tax-deferred retirement savings vehicle that provides fixed asset accumulation. With a fixed annuity, you can invest your savings over a specified time horizon (typically 1 to 10 years), earning a fixed return – much like a CD. The interest earned in your fixed annuity is not taxed until withdrawn, and your principal is guaranteed.

Tip: You might hear this product referred to using a few different names:

• Traditional Annuity
• Multi-year guaranteed annuity (MYGA)
• Fixed Indexed Annuity (FIA)
• Single Premium Immediate Annuity (SPIA)

How Does a Fixed Annuity Work?

You can purchase a fixed annuity with a lump sum (single premium) or a series of payments, which is known as a flexible premium. 

You might fund the single-premium option through the sale of a major asset, such as a home; an inheritance, or other windfall; or by rolling over your 401(k) or IRA.

The second option is flexible because you can change the amount of money you contribute and/or how often you make payments over a period of time. Obviously, the more money you contribute, and the sooner you contribute it, the more interest you’ll get back. 

Flexible-premium annuities are always deferred annuities, which means you won’t begin seeing payments until at least one year after your purchase. In exchange for your contributions, you’ll get regular income payments during your retirement. 

Who Is a Fixed Annuity Right for?

Just like with any product, fixed annuities might make sense for you, or they might not. We’ve compiled a checklist to help you figure out whether a fixed annuity fits your investment needs.

Consider buying a fixed annuity if…

• You have money to invest for at least 3 years
• The money you’re investing is earmarked for retirement or to be passed on to heirs
• You’ve already maxed out your IRA or 401(k) contributions
• You want greater certainty and principal protection
• You have other assets in the market exposed to higher expected returns
• You want to preserve some liquidity

A fixed annuity is probably not the right product for you if…

• You need to access your money during the surrender sales charge period or before age 59½
• You aren’t maxing out IRA or 401(k) contributions
• You’re interested in investments and willing to risk principal