How a Fixed Annuity Works
You pay a premium, and the insurance company credits a guaranteed interest rate for a set period (the initial guarantee period). After that period, the rate may adjust based on then-current rates, subject to any contractual minimum guaranteed rate.
Where Fixed Annuities Tend to Fit
- Conservative retirement savers who want principal protection from market downturns
- Money earmarked for a specific future need that you don't intend to touch during the surrender period
- A complement to other more growth-oriented retirement assets
Questions to Ask Before Purchasing
- What is the guaranteed rate, and for how long is it locked in?
- What is the minimum guaranteed rate after the initial period ends?
- What is the surrender charge schedule, and is there a free withdrawal provision?
Key Takeaways
- Fixed annuities offer a guaranteed interest rate for a defined period, prioritizing principal protection over growth potential.
- Rates typically reset after the initial guarantee period, subject to a contractual minimum.
- Surrender charges apply to withdrawals beyond any free withdrawal allowance during the surrender period.
Guarantees are backed by the claims-paying ability of the issuing insurance company, not by any bank or government agency. Rates, terms, and fees vary by carrier and contract. This is educational content, not a recommendation to purchase a specific product.
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