The fixed annuity is best suited for a conservative investor
who wants to know exactly what the rate of return will be
on his or her investment.
With a fixed annuity, the premium you pay earns a specified
rate of return over a guaranteed period--most often ranging
from 1 to 10 years. At the end of the contract term, a new
rate is declared, and you may rollover your contract for another
Both the money you invest and the interest paid out are guaranteed
by the claims-paying ability of the insurance company--they
are neither government nor FDIC insured.
Characteristics of Both Fixed and Variable Annuities:
- Growth of investment earnings is tax deferred.
- Earnings are taxed at your ordinary income tax rate.
- Money withdrawn before age 59½ may be subject to
a 10% premature distribution tax penalty.
- Death benefit proceeds avoid the costs and delays of probate.
- Many flexible payout options are available for providing
income upon retirement, ranging from a set amount of time
or as long as you and/or your spouse live.
- A free cancellation period--also known as a free
look period--allowing you to change your mind and
cancel the policy within a certain amount of time.