- Zero hidden fees.
- 3% on every dollar deposited
- Withdraw at anytime.
Control every aspect of your retirement starting today
See exactly how much money you will get on a monthly basis once you retire. With our simple Annuity Calculator you can see how much money you will have coming into your bank account. Got a bonus you want to put to retirement, easy. Put it in your retirement annuity account so that when you retire, you’ll have more coming every month.
Your get 3% a month on your money. Deposit money each month and know exactly how much money you’ll have when you retire. Got unexpected expenses? You can cash out your annuity money you’ve invested at any time.
Fixed Annuity Plans for Everyone
It’s the same plan for you, me, your parents and your children.
- Each paid account earns 3% interest on every dollar you put into your Due annuity plan.
- If you choose the free plan, your account will earn 1% interest on your money.
With your Due Fixed Annuity plan you can expect at your retirement age you will start receiving a fixed sum of money each month until you die.
Want to see how much money you’ll earn every month? You can use our simple annuity calculator to illustrate exactly how much. You can also see exactly how much you’ll receive once you login to your account.
Transparency is at our core
“The number one worry for people when they retire is running out of money.”
Due was started to help people like me and you have a retirement plan that they don’t have to think about or worry about long term. We build trust with our customers by having a transparent company:
- We don’t have some extremely complex algorithm.
- We don’t tell you we’ll charge you one thing and bait and switch.
- All our fees our transparent.
- We don’t hold your money hostage.
We are like you, just trying to make the most out of life and plan for the best life after we stop working. Life can be tricky, you shouldn’t have to think about this kinda stuff.
Control Your Retirement Income
You personally control your retirement income. The more money you put into a fixed annuity, the more money it will pay out when you retire.
The nice thing about retirement is the more you save every month, the more you will have coming to you when you retire.
A fixed annuity provides you a way to easily save money over the long term. You can set it up on auto-deposit so you don’t have to think about it. Annuities allows interest to accumulate tax deferred.
Over the long term, you’re paying for a stream of income for the rest of your life. If you pass away early, whatever remaining balance in your account will be paid out to your survivors.
takes less than 2 minutes
I’m guessing you might not have a fixed annuity plan. Regardless of your demographic, you probably have a checking account. In fact, 95% of households have a bank account. Hopefully, you have a little financial security as well through a savings account. And, because it’s never too early to think about retirement, you’ve at least kicked the tires on a 401(k), IRA, or Social Annuity.
The thing is, if you really want to get the most out of your retirement, then you need to have multiple income sources. In other words, your retirement plan should consist of plans like a 401(k), Social Security, and annuities.
Despite the fact that annuities can be traced back to Ancient Rome and provide a guaranteed lifetime income, most people shrug it off. Maybe because they’ve gotten some bad advice from so-called financial experts. Or, perhaps they’re just not all that knowledgeable about annuities.
Whatever the culprit, annuities should without question be considered as a part of your portfolio. And, to help you get started, let’s take a closer look at one of the most straightforward annuity types; the fixed annuity.
How concerned are you about retiring? For over half of Americans, this topic might be worrisome. After all, it’s not an easy transition to part with your career — which has most likely defined you for decades.
There are many facets to the issues people worry about in retirement — including that they’re going to be bored or lonely. There’s also anxiety over finances, like carrying too much debt or not being able to pay living expenses or medical bills. And, what if Social Security dries up or you outlive your savings?
While all are valid considerations, there may be practical and effective ways to ease your uneasiness over retirement. And, that’s through a fixed annuity.
What is a Fixed Annuity?
The short answer? A fixed annuity is simply an insurance contract. In return for the contributions that you make, you’re guaranteed either a series of payments or a lump sum for the rest of your life. And unlike investments such as a variable annuity, you won’t lose any of your hard-earned money to stock or bond market volatility.
Now, let’s give you a longer and more in-depth explanation on what an annuity is.
A fixed annuity is also known as a multi-year guaranteed annuity (MYGA). However, there are a variety of other names that fixed annuities go by, including;
- CD annuity
- CD-like annuity
- Fixed rate annuity
- Fixed deferred annuity
- Deferred annuity
- Single premium deferred annuity (SPDA)
This explanation isn’t to confuse you or muddy the waters. Nope. The reason is that you will hear all of these names to describe how a fixed annuity works, as well as how to find the different type of annuity that you want. For the time being though — just know that a fixed annuity is a tax-deferred, high-yield savings account designed solely for retirement savings.
A fixed annuity performs similarly to a Certificate of Deposit (CD), that’s why it’s been dubbed a CD annuity or CD-like annuity. Just like CD rates, both the principal, interest, and the amount of benefits are guaranteed with a fixed annuity. Also, fixed annuity rates accumulate just as a Certificate of Deposit (CD) does.
The key difference is that your earnings will grow tax-free until you begin making withdrawals. For the uninitiated, this tax advantage is called tax-deferral. Another difference is that while a CD is offered by a bank or other-FDIC insured institution, fixed annuities are purchased by an insurance company or approved provider.
In addition to providing a guaranteed rate of return for the investment term you’ve agreed upon in your contract, you also have the opportunity to turn your fixed annuity savings into a lifelong pension-like income. It’s crucial to understand, however, that the fixed annuity guarantee is backed by insurance companies’ financial strength. You can find this out via independent rating agencies like AM Best and Standard & Poor’s.
After you’ve found a financially strong insurance company, you have two options for buying a fixed annuity. The first option is through one, big lump sum. The other is through a series or payments over a specified period of time. In turn, the insurance company guarantees that your account will grow at a certain rate of interest during a specific period of time. This is what’s known as the accumulation phase.
It’s during the accumulation phase when your account grows tax-deferred. Once you annuitize the contract, distributions will be taxed based on an exclusion ratio. This is the ratio of the premium payments you’ve made to the amount accumulated in the annuity account. FYI, this would be based on gains from the interest earned during this phase. After that, the premiums paid will be excluded and the portion attributable to gains is taxed. This is often expressed as a percentage.
When you, the annuity owner or annuitant, begin receiving regular income from your annuity, the insurance company will calculate your payments based on several different factors. These factors include the amount of money in the account, how long the payments are to continue, age, gender, and life expectancy. At this time, the payout phase begins. And this payout phase will continue either for a specified number of years or for the rest of the owner’s life.
- Increasing the annuities value by adding funds to your account.
- Not touching your assets so that earns interest over time.
- Converting the annuity into a steady stream of payments in the future to supplement retirement plans like Social Security.
- Transferring the assets of the annuity to another financial institution.
- Making lump-sum withdrawals when needed, like covering an unexpected medical expense.
- Completely cashing out the annuity.
Just be aware that all of the options listed above come with penalty taxes, surrender charges, or income taxes. You should also anticipate annual fees with deferred annuities as well.
Regardless of the fees involved, a deferred annuity allows you to have more control over your money as you have more flexible options than just a lifetime income. For example, if you need to make a withdrawal to pay for an emergency medical expense, you can do this as needed.
Death Benefit for Beneficiaries
Also, it should be mentioned that deferred annuities come with a simple standard death benefit. Let’s say that you pass away during the accumulation period, your deferred annuity will pay some, if not all, of the current annuity’s value to your beneficiaries.
Just as you have this option — your beneficiaries can decide on either taking one payment or multiple annuity income payments over time. Typically, the death benefit amount is actually greater than the annuity accumulation value or the minimum guaranteed surrender value.
You may also choose an enhanced death benefit. The advantage of an enhanced death benefit is that it could increase the value of the benefit’s value. But, you will have to dish out an additional cost.
How does a fixed annuity work?
Fixed-rate annuities, along with MYGAs, earn a guaranteed fixed interest rate from the insurer whom they purchased the annuity from. The insurer also sets up the annuity and the contract can range anywhere from two years to 20 years. In a way, they work similarly to CDs that you buy from a bank.
At the conclusion of the annuity rate period, the insurance company will establish a new interest rate for the next rate term. Not surprisingly, this is called the renewal rate. The rate on renewed interest rate may not be the exact same as the initial fixed annuity rate in your contract. In other words, it could be higher or lower.
The good news? All fixed deferred annuities come with a guaranteed minimum interest rate. This is the lowest possible rate that the annuity can earn. And, because this is clearly spelled out in your contract, it can’t change — for as long as you own the annuity.
Before putting your John Hancock on the contract, ask what your initial annuity rate will be. Also, find out the duration of the annuity before it’s time to renew. Doing your due diligence from the get-go will ensure that you’ll get the most out of the annuity.
Once you sign the contract you’ll begin making contributions to the annuity. You can either make your contributions with one payment or through a series of payments. From there, the annuity enters the accumulation phase where it will grow tax-deferred. When you annuitize the contract, however, the distributions will be taxed on an exclusion ratio.
Speaking of disbursements, you also have the following two choices;
Are fixed annuities and CDs the same thing?
Remember that fixed annuities can be compared to a CD. And it’s easy to see the parallels as they operate quite similarly to each other.
Both a fixed annuity and CD are safe and secure ways to save money, and build your wealth. While you won’t make as much money as you would on riskier investments like hedge funds or real estate — the interest credited to your account is higher than most savings accounts.
Another similarity? Both a fixed annuity and a CD are less liquid in the shorter term than say cash, money market assets, or mutual funds. The reason being that in order for the CD or annuity to earn interest, you must lock the money in the account for a specific period of time.
There is an important distinction between a fixed annuity and CD. And that’s the fact that fixed annuities are considered a long-term investment. And, thanks to the tax-preferential treatment, they are often viewed as the better option for retirement savings. On the other hand, CDs are a short-term investment, like storing money to buy a home.
But, that’s not the only difference between a fixed annuity and CD. Let’s take a closer look at what separates them;
- A fixed annuity is sold by an insurance company, while CD’s are sold by banks
- Investment terms can vary. However, a fixed annuity term is 3 to 10 years, while a CD’s is much shorter, like 5 months to 5 years.
- Interest rates also vary. With a fixed annuity, interest rates are determined by term and size. They’re also typically higher than a CD. CDs are also based around term and size and lower than a fixed annuity.
- Taxes on gains in your fixed annuity are deferred until you make withdrawals. With a CD, taxes on any gains occur as they’re earned.
- CD’s are insured by the FDIC, up to $250,000 total per bank. The insurance company and State Guaranty Funds oversee annuities.
- You’re permitted to withdraw a portion of your fixed annuity account balance annually. If you do this prior to age 59 ½, expect a 10% IRS penalty. Generally, with CDs, there’s no free access to your account balance.
- You can name a beneficiary to pass on whatever remains in your fixed annuity account. You can even do this without going through the probate process. But, with a CD, you will have to go through the probate process.
Fixed annuities vs. MYGAs.
While often considered one in the same — fixed annuities and MYGAs are not the same. Rather, MYGAs are a type of fixed annuity. And, the main difference is the timeframe that the contracts guarantee the fixed interest rate.
More specifically, a MYGA has the same fixed annuity rate each year for the length of the contact. So, if you lock-in a MYGA at a 3% interest rate for 10 years, that’s what you’re going to receive.
That’s not the case with a traditional fixed annuity. A traditional fixed annuity may offer an initial fixed interest rate that’s more favorable. This is known as a teaser rate. However, the rate will be lower in later years. As an example, during the first two years of a 10 year annuity, you may earn 5% interest. But, from year 3 to 10, it will drop to 2.5%. As mentioned, with Due — your rate is always 3%.
MYGAs are also conservative by nature. As such, they’re often better suited for those who are closer to retirement. But, if you’re hoping to outpace inflation, you might want to consider a different retirement vehicle.
The Upside of Fixed Annuities
Still on the fence about buying a fixed annuity? The following benefits may convince you to buy a fixed annuity sooner than later.
Predictable investment returns.
If you aren’t willing to take the risk of variable annuities, where you choose the investments and the performance is tied to the market — then a fixed annuity is perfect just for you.
With fixed annuities, the rates are upfront and stated in the contract. These rates are derived from the yield that the life insurance company generates from its own investment portfolio.
In most cases, these investments come from high-quality corporate and government bonds. Also, the insurance company then takes these earnings to pay you what was agreed upon in the contract.
Guaranteed minimum rates.
Perhaps the main perk of a fixed annuity is that you don’t lose any money. The insurance company promises that you will not lose either the principal or interest that the annuity has accumulated. That means your money is protected against declining interest rates and market downturns. Your annuity is even protected against severe market losses like the “Great Depression.”
Did you know that a fixed annuity is a tax-qualified vehicle? Having a tax-qualified vehicle is important to know since that makes the interest you’ve earned not subject to taxation. As such, you’ll only be taxed when you withdraw money from your account. Be aware that this includes both occasional withdrawals or regular income.
For people in higher tax brackets, the tax deferral benefit of a fixed annuity can make a huge difference in how the account grows over the years. And for the record, other qualified retirement accounts, such as IRAs and 401(k) plans, are also tax deferred.
Guaranteed income payments.
Whenever you want, you can convert your fixed annuity into an immediate annuity. In turn, the annuity will generate a guaranteed income payout for a designated period of time — let’s say for the next 20 years. Or you can also opt to receive lifetime payments.
Relative safety of principal.
Again, the life insurance company assumes all the risk when it comes to fixed annuities. Carrying and assuming all risk makes them responsible for the security of the money that you’ve invested into the annuity.
The insurance company must also fulfill any promises that were made in the contract. Also, annuities are not federally insured — though many special government certificates have to be obtained by the financial company and the insurance company in order to offer annuities.
Taking both into consideration, you should conduct business with financially strong insurance companies that have earned high ratings from major independent ratings agencies.
Other pros of fixed annuities are;
- Competitive interest rates that earn a higher rate of return than a bank certificate of deposit or high-yield savings account. Also, the compounding interest is better than that of a standard CD.
- You can access your money without penalties if you’re 59 ½ or older.
- Systematic withdrawals of interest.
- Withdrawal charge waivers for expenses like long-term care expenses.
- Guaranteed death benefit so that you can leave money to your heirs.
- No upfront charges or fees.
The Downside of Fixed Annuities.
Despite the advantages listed above, fixed annuities aren’t without their flaws. Before committing to a fixed annuity, do your homework. You want to make sure that you’re selecting the right annuity type for your retirement plan and goals. For example, if you’re close to retirement, a deferred fixed annuity might not be in your best interest unless you can make a larger lump sum contribution. The same is true of a variable annuity that may come with too much risk at such a crucial stage.
It’s vital that you do your homework on the insurance company that you’re working with. Agan, annuities are not overseen by the FDIC. So, if you chose poorly, and the insurance company folds, you’re out-of-luck. Outside of those general warnings, be advised of the following fixed annuity pitfalls;
- 10% IRS penalty — if you make a withdrawal from the annuity before the age of 59 ½, you’ll be subject to a 10% tax penalty by the IRS.
- Limited liquidity. As with all annuities, payment disbursements are designed with a predetermined deferral period or will be distributed over a specific number of payments. If you decide to make a withdrawal, you could lose a sizable chunk of your earnings thanks to factors like surrender charges.
- Income is taxed as regular income if you take it out early. While the tax-deferred status is beneficial to growth, when payments begin, it’s considered income and not capital gains. As such, expect to be taxed as ordinary income.
- Principal protection. It’s true that a fixed annuity offers principal protection. But, if the insurance company goes bankrupt, you could lose some, if not all, of your investment.
- Inflation risk. Even though a fixed annuity provides you with a set rate of return, which makes planning easier, you’re still exposed to inflation risk. Inflation risk occurs as the price of goods and commodities fluctuate over time — but your fixed annuity rates stay put.
- Fixed annuity contracts can be complicated. Since the details of an annuity vary greatly from product to product, fixed annuity contracts can become complex and difficult to understand.
How are fixed annuities taxed?
Annuities, in general, have been granted special treatment by current law. In particular, when it comes to taxes. As previously stated, the income tax on fixed annuities, as well as MYGAs are deferred. When you hear deferred — it’s just another way of saying that you won’t be taxed on the interest or investment returns while your money is accumulating.
But, don’t confuse tax-deferred with tax-free. You will still have to pay the ordinary income tax as soon as you begin making withdrawals from your account. Having to pay income tax is also true if you receive an income stream or take a draw from your annuity payments.
What happens if you die and you have beneficiaries? Usually, your beneficiary will owe income tax on any death benefits that they are the recipients of. And — this can’t be stressed enough — you’re responsible for a 10% tax penalty if you withdraw any annuity payments before the age 59½.
Qualified fixed annuities.
Qualified fixed annuities generally have a tax status that refers to employer-sponsored savings plans, such as IRAs, 401k, or SEP. These types of plans are pre-taxed funds. As such, when you withdraw any funds from your account, 100% of the income taken out will be subject to ordinary income taxes.
There is an exception, however. And that’s with the Roth IRA fixed annuity. All funds withdrawn from these annuity contracts will be tax-free.
Non-Qualified Fixed Annuities
Unlike qualified fixed annuities, non-qualified fixed annuities are paid with “after-taxed” money. That means that as the owner of a non-qualified fixed annuity you will be subject to paying income taxes on the interest credits earned — despite not having not been taxed yet.
Disclaimer: Before agreeing to a contract, ask a tax professional about your specific situation so that you’ll receive the proper tax advice.
1035 exchanges for fixed annuities
Did you know that your existing fixed, variable, and indexed annuities can be easily exchanged into a new annuity contract? If you did not know that — now you do. The exchange happens through a process called a 1035 exchange. This IRS code also lets you transfer a life insurance policy, long-term care product, or endowment for another similar product — tax-free.
For those looking to maximize the value of your annuities, this is a popular approach. Mainly, because there aren’t tax consequences. For example, you could exchange an outdated and underperforming product for a shiny new product that contains more attractive investment options.
In terms of a fixed annuity, you could use a 1035 exchange to swap to a lower contract for a fixed annuity contract that has a higher interest rate. Or if you no longer want to assume the risks associated with a variable annuity you could trade that contract in for a more consistent fixed annuity.
Before making any decisions, keep in mind the key 1035 annuity exchange considerations;
- Review your financial goals before assessing a 1035 exchange. You want to make sure that making this move will help you reach your goals. For instance, a new policy may have a higher interest rate, which is great for today. But, if you have beneficiaries, the new policy could have a higher death benefit.
- Make sure that you’re getting more value out of the exchange. Let’s say that you’re exchanging your current fixed annuity for a new contract. A new contract would only make sense if the new fixed annuity is paying a higher interest rate.
- Be aware of surrender charges. Most fixed, variable, as well as indexed annuities come with a surrender charge period. As a refresher, this is a specific number of years during the early stages of the annuity where you’ll get charged, usually 1-10%, if you withdraw your money early.
- Evaluate your existing annuity’s income options. Remember, all annuities offer the ability to annuitize. To put that more simply, convert your money into a guaranteed income. You can find out what annuitization rates are being offered by contacting. With this information, you can compare rates in order to make a more informed decision.
- Financial strength of the insurer. You may be tempted to switch contracts with a new insurance company that’s enticing you with a high interest rate. But, what is their financial strength compared to your existing insurer? If they’re not on the up-and-up, there’s a possibility that they won’t be around to pay out your annuity.
Finding the right fixed annuity.
When selecting a fixed annuity, there are three considerations you should pay extra close attention to; guaranteed annual rate, insurer rating, and the investment term.
- Guaranteed Rate. A guaranteed rate is the effective annual rate that your money will grow throughout the investment term. The catch? You need to hold the contract until it reaches full maturity. Real guaranteed rates are around 4%, so if an insurer is promising 7% — that’s probably too good to be true.
- Insurer Rating. Only work with a reputable fixed rate annuity provider. They should be rated by A.M. Best, Standard & Poor’s, Moody’s, and/or Fitch. With A.M. Best, the highest rating is A++, followed A+, A, A-, B++, B+, and so forth. With any long-term annuity purchases, it’s highly recommended that you choose insurers with an A or better rating. However, if you have a shorter-term annuity, like a fixed annuity, a B++ or B+ insurer will suffice since your goal is to take advantage of the top yields.
- Investment Term. Most terms range between 3 years to 10 years. During that time frame, you’ll receive a guaranteed rate. But, you will also have limited access to your funds. And, while not always the case, don’t be too surprised if rates increase as the term increases.
If you want to make sure that a fixed annuity is right for you, use the following information listed above as a starting point. From there, speak with your financial advisor or insurance provider to be 100% certain.
Average annuity rates.
What is a good annuity rate? Asking what rate is a good annuity rate is probably the most important question you’ll want answered.
Currently, average annuity rates, one you can expect between 2.15% and 3.50% ranging between 2 years and 10 years in length for average annuity rates. These rates can fluctuate, so you can use resources like Annuity.org for updated rates as they do this every work.
Having to always be figuring a rate is the reason Due decided on the 3% rate — and they stick with the same rate — no figuring.
You can also use our fixed annuity calculator to solve your exact rate of return.
Chapters - Fixed Annuity
- How Does a Fixed Annuity Work?
- Always refer to your contract
- The Benefits and Criticisms of Fixed Annuities
- Benefits of Fixed Annuities
- The drawbacks of fixed annuities
- Current Fixed Annuity Rates
- Are Fixed Annuities Guaranteed?
- The Differences Between Fixed and Indexed Annuities
- Fixed Annuity Calculator
- Buying a Fixed Annuity
Top 10 Questions to Ask Before Buying a Fixed Annuity
Fixed annuities are a popular and powerful retirement instrument. And, it’s easy to understand why. Fixed annuities come with benefits like a guaranteed return and income. What’s more, fixed annuities are tax-deferred, offer flexible payout options, and low investment minimums.
But, there are also disadvantages as well. The primary drawback is that fixed annuities provide limited gains, returns, and teaser rates. Because anything that you earn in a fixed annuity is guaranteed, gains and returns are low. But, that’s the price you’ll pay if you want to build a safe bond portfolio.
Another drawback is “teaser rates.” These are attractive guaranteed returns to get you to purchase a fixed annuity. After an initial period, however, these rates will decrease. As such, that doesn’t make a fixed annuity the best vehicle for growth.
And, because fixed annuities are a long-term investment, they are illiquid meaning that they are difficult to access if you need access to these funds. If you do need to take your money out, expect an expensive early penalty withdrawal. If you’re under 59 ½ expect a 10 percent penalty fee.
The short answer, it depends. Unlike fixed annuities that guarantee a fixed return on your investment, no matter what, variable annuities you return are dictated by the market. As such, a variable annuity may lose value if the market goes down.
That doesn’t mean that you should discount variable annuities. There are unique advantages associated with variable annuities. Primarily, you can accelerate your growth more than a fixed annuity, which offers the potential for greater returns. But, again, that is determined by how the market is performing.
Additionally, there are tax benefits attached to variable annuities as the earned income isn’t taxed until the funds are withdrawn. Also, variable annuities allow you to build a more diverse and flexible investment portfolio since it contains a wide range of investments, which is similar to how mutual funds work.
Also, like many other annuity types, variable annuities permit you to make unlimited contributions and include a death benefit. And, you’ll also enjoy a guaranteed income in retirement.
Here’s where fixed annuities have an upper hand, however. While you may have a limited return, in compression to a variable annuity, you’re protected from the volatility of the stock market. That means you’ll still earn a reasonable return, while not taking in as much risk. With With a Due Fixed Annuity, as an example, you’ll get 3% a month on your money. As an added perk, fixed annuity contracts are easy to understand and make it easier to budget for your retirement.
So, which one should you choose? It ultimately depends on your risk tolerance. For example, if you’re close to retirement and are looking for a way to supplement your 401(k), IRA, and Social Security, a fixed annuity might be a safer bet. If you’re younger and looking for a way to save a lot for retirement, you might be more willing to take on the risker variable annuity.
Both a traditional fixed annuity and a Due Fixed Annuity provides an interest rate that is guaranteed. That makes planning your retirement easier and more transparent. There is one important distinction between the two; how many years the interest is guaranteed.
With a traditional annuity, the interest rate is guaranteed only one year at a time. While you’ll still receive a guaranteed minimum guaranteed rate, this could fluctuate every year. When rates are low, this type of annuity isn’t a favorable investment option. But, when rates move up, this could make them more attractive to investors. What’s more, to entice you into purchasing this annuity, you may receive an upfront bonus or lock in the annual rate when it’s time to renew.
That’s not the case with a Due Fixed Annuity. From the get-go, your rate is set-in-stone. Each paid account earns 3% interest on every dollar that you contribute annually — it’s 1% if you have a free account. You can expect this fixed interest rate when you begin receiving a fixed sum of money each month when you retire. And, a Due Fixed Annuity pays out till death.
One of the top concerns regarding retirement is outliving the money that you’ve worked so tirelessly to save. In fact, one study found that close to half of Americans cite running out of money as their chief retirement concern. And, according to research from Allianz Life, 60% of baby boomers are more afraid of running out of money than dying.
Purchasing a Due Fixed Annuity will help put your mind at ease over this burden. That’s because, unlike other retirement plans that can dry up, your fixed annuity will always be flowing. Annuities were designed as far back as Ancient Rome to provide individuals with a stream of income for the rest of you life.
In short, a fixed annuity will last until you die.
In short, there is no limint.
While having a retirement plan like a 401(k), IRA, and/or Roth IRA are without question essential, they do have a major flaw. And, that’s contribution limits. For those familiar, this is simply how much money you’re permitted to deposit into these retirement savings accounts each year. Contribution limits can change annually and are determined by your income range.
In 2021, here are the contribution limits at a glance;
- Employer-sponsored plans: $19,500
- 401(k), 403(b), 457 plans, thrift savings plan
- Individual retirement account (IRA): $6,000
- Roth IRA: $6,000
If you’re over age 50, the IRS does allow for additional catch-up contributions to help you reach your retirement goals. For employer-sponsored plans, the catch-up limit is $6,500. It’s $1,000 for both a Roth and traditional IRA.
This is the complete opposite with a fixed annuity. You can contribute however much money you like into your account. It is advised though that you only do this after you’ve maxed out your 401(k) and IRA. And, most importantly, if you have the regular income to make monthly deposits into your fixed annuity account.
Yes. You can withdraw all of your money whenever you want — or need to in the case of an emergency, like an unexpected medical cost.
There is, however, some fine print that you should read before making a withdrawal.
Firstly, anticipate a 10% withdrawal early fee. This is common practice in the annuity world. And, will have to pay this penalty to the IRS if you do this before the age of 59 ½.
Secondly, fixed annuity account holders can withdraw a certain percentage of their account’s total value or initial premium each policy year without getting penalized. Often, this is 10% of your annuity’s principal.
To avoid these penalties, you should wait until after the surrender period ends or have a a free withdrawal provision in your annuity contract. The downside of this is that a surrender period often lasts for years. And, if you’re in an emergency, you can not wait that long. With that said, it’s advised that you have an emergency fund so that you do not have to withdraw money from your fixed annuity.
The good news is that there aren’t upfront sales charges or ongoing maintenance fees linked to fixed annuities. That doesn’t mean you’re free and clear of fees though.
With a fixed annuity contract, fees may come in the form of;
- Interest rate reduction
- Annuity rider fees, such as enhanced death benefits, or higher caps and participation rates, that can cost up to 1.75% of the account value annually.
- Commissions, which are a portion of the annuity cost used to compensate the agent. If you have a 10-year fixed index, as an example, the commission on this annuity can range from 6 to 8 percent.
- Administrative to manage your account. Most of the time this is around 0.3 percent of your annuity contract’s value.
- Surrender charges, which as previously mentioned, are penalties for making an early withdrawal.
Despite this, fixed annuities are the least expensive annuity to own.
One of the most appealing selling points of a fixed annuity is that it yields a predictable income for the rest of your life. But, what happens to this money if you unfortunately pass away?
Well, if you haven’t gotten back all of the money that you’ve deposited in the fixed annuity, along with the accumulated interest, can be passed on to a beneficiary.
Your beneficiary needs to be spelled out in your contract. But, usually, your spouse or an heir should be included in a death-benefit provision. But, you can designate anyone to be a beneficiary and have multiple designations. If so, they will receive the greater of either all the remaining money or a guaranteed minimum from the provider from whom you purchased the annuity.
Just like how you set up your payments, they’ll receive either one lump sum or a series of payments. And, if your beneficiary is your spouse and you didn’t make any withdrawals, the annuity will continue to grow tax-deferred.
A minimum guaranteed rate is included in your contract. Again, that means that the interest on your annuity will not drop below a specific rate — for Due, that’s 3 percent. The annuity provider also promises the principal investment as well.
At the same time, annuities are not guaranteed by the Federal Deposit Insurance Company (FDIC). In fact, annuities are not regulated by any federal entity. Rather, they are overseen by state insurance companies.
With that in mind, it’s highly recommended that before buying a fixed annuity you do your homework by contacting your state’s insurance commissioner to be 100% positive that the insurance broker is guaranteed and regulated.
Furthermore, you should only purchase a fixed annuity from insurance companies/agents, broker-dealers, mutual fund companies, and banks that have a strong rating from an independent rating company including Standard & Poor’s, Fitch, AM Best, or Moody’s. Also, focus on their history and financial strength.
Unlike variable annuities where rates are driven by the market, fixed annuity rates are established by the insurance company or provider. Factors including current interest rates, premium age, the annuitant’s age, gender, and life expectancy are used to set fixed annuity rates.
While more fixed annuity rates are guaranteed for the entire lifespan of the annuity, some products, such as a traditional fixed annuity, may offer a higher interest rate initially, but lower this rate for the rest of the period. Make sure that you’re aware of this fact before committing a fixed annuity — it should be clearly outlined in the contract.
And, your fixed annuity interest will compound annually. The only exception is when you make a withdraw. So, if you’ve purchased a Due Fixed Annuity for $100,000 and didn’t touch it for 10-years, then at 3% interest you’ve made $30,000 in total interest.