How Is an Annuity Fixed?
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How Is an Annuity Fixed?
A fixed annuity is fixed in two ways: fixed investment rate and fixed payout amount. Both are guaranteed by the annuity company.
Things To Know
- A fixed annuity is fixed in two ways: fixed investment rate and fixed payout amount.
Fixed investment rate
While your premiums are accumulating, your principal is guaranteed and your account is guaranteed to grow at a fixed investment rate. Your investment income grows tax-deferred.
Fixed payout amount
During the payout period, your monthly income is fixed at a guaranteed amount, calculated according to your age, sex, and the payout option you select.
Example
During your accumulation period you might pay $100 per month guaranteed to grow at 5% annually. When you retire and annuitize your contract, the company might pay you a guaranteed $200 per month for as long as you live. The payout amount is calculated based upon your age at the time you annuitize and the company’s assumed payout rate. A fixed annuity is very much like the old defined benefit pension plans.
