- Tax-deferred growth
- Safety of principal in any type of stock market environment
- Lifetime income
Fixed versus Fixed Indexed Annuities
Fixed annuities are known for their safety and guarantees. These annuities can provide you with a set amount of return – which may even be locked in for a pre-specified period of time. Your funds in the annuity grow on a tax-deferred basis. This means that there is no tax due on the gain until the time of withdrawal. While the return on a fixed annuity is usually quite low, the protection of principal is an enticing benefit for those who are seeking safety. This is true, even in the event of a significant stock market correction. And this, in turn, can allow you to sleep much better at night. The guaranteed income stream from a fixed annuity is another big draw for retirees who are looking for an income “floor” or a way to fill in an income “gap” between expenses and other sources of retirement income generation. Fixed indexed annuities are actually a type of fixed annuity. The primary difference is the way in which the return is determined. With fixed indexed annuities, one or more market indexes are tracked, such as the S&P 500. When the index rises in a given contract year, a positive return is credited to your annuity contract – oftentimes up to a certain limit, or “cap.” But in contract years when the index is down, there is no negative impact on the value of the annuity. Rather, a guaranteed minimum rate, which is typically between 0% and 2%, is credited to the account. So, while there is a limit on the upside growth, a fixed indexed annuity will also keep your principal safe.Income and Other Fixed Annuity Features
Both fixed and fixed indexed annuities offer an income stream. These payments can continue for a set period of time, such as ten or twenty years, or even for the remainder of your lifetime. There is often a joint income option available, too. In this case, the income will continue throughout the lifetime of two individuals – such as a husband and wife. Fixed and fixed indexed annuities may also include other benefits, too, such as a(n):- Death benefit (usually if the annuitant dies before the contract value has been paid out)
- Penalty-free waiver(s) to access funds if the annuitant or owner is diagnosed with a terminal or chronic illness and/or must reside in a nursing home for at least a certain period of time
Fixed Annuity versus Fixed Indexed Annuity
Fixed Annuity | Fixed Indexed Annuity | |
---|---|---|
Tax-Deferred Growth | Yes | Yes |
Protection of Principal | Yes | Yes |
Guaranteed Minimum Return | Yes | Yes |
Market-Linked Growth | No | Yes |
Death Benefit | Yes | Yes |
Guaranteed Income | Yes | Yes |