This profile of fixed annuities is one in a series created to increase awareness of annuities by providing market color, friendly tips, and interesting stats at a glance.
A deferred annuity is a long-term, tax-deferred investment issued by an insurance company and purchased through a qualified professional.
There are four main types:
Fixed annuities
Fixed annuities preserve retirement assets by providing both a guaranteed annual return and full protection of principal.
Did you know?
Banks are not the only option when an investor is seeking returns and wants full protection. Insurance companies have had a product comparable to a Certificate of Deposit (CD) for decades. Like CDs, fixed annuities provide both:
- Full protection of an investor’s premium.
- A specified, guaranteed return.
Tax fact: Keep more to earn more
With a fixed annuity, interest in an investor’s contract grows tax-deferred and annual tax savings stay in the account to earn interest. This can grow savings faster until money is withdrawn. Contrast that to a CD, where earned interest is taxable every year.
Because fixed annuities generally have longer holding periods than CDs, insurance companies generally offer higher annual interest rates than a typical bank CD.
Investors should work with a qualified professional to find the right fixed annuity for their financial needs.
Given the equity market’s pullback in 2022, many investors are looking for a reasonable return on retirement savings they are not willing to put at risk.
Friendly tip: Shop around
Just like some banks offer higher interest rates on savings than other banks, fixed annuity rates can differ widely from one insurance company to another. In addition, like CDs, fixed annuities come in a wide range of rate guarantee periods.
Interesting fact
Fixed annuity sales in the first half of 2023 were up 64% versus the first half of 2022, representing the highest six-month period in fixed annuity sales to date.1 Fixed annuities benefit from high interest rate environments, with insurance companies able to offer more attractive rates.
Know that fixed annuities:
- May not provide returns that keep pace with inflation.
- Are not FDIC insured like CDs, and guarantees under a fixed annuity contract are backed by the issuing insurance company and subject to its claims paying ability.
- Are considered a long-term investment, typically carrying penalties (such as a surrender charge) if money is withdrawn during the stated surrender period.
- Come with an additional 10% federal tax penalty for withdrawals prior to age 591⁄2.
Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. Structured investment and certain annuities products and services may be offered through SIMON Markets LLC (“SIMON”). SIMON is a registered broker/dealer, member FINRA and SIPC, and is affiliated with iCapital, Inc. and its subsidiaries. Please see the disclaimer at the end of this document for more information about these entities.
Please contact your financial professional to learn more.
ENDNOTES
1. Record-High Sales of Registered Index-Linked and Fixed Indexed Annuities Drive Overall Sales Growth in the Second Quarter 2023, LIMRA, July 25, 2023.
IMPORTANT INFORMATION — DISCLAIMER
ANNUITIES ARE CONSIDERED COMPLEX PRODUCTS AND MAY NOT BE SUITABLE FOR ALL INVESTORS.
This is not intended to be an offer or solicitation to purchase or sell any security or to employ a specific investment strategy. This material is intended as general background information, for educational purposes only, and should not be used as a primary basis to make a decision to purchase an annuity contract. This material is being provided for informational purposes only and does not take into account any specific investment objectives or financial situation of any investor. The information is not intended as investment advice and is not a recommendation about managing or investing retirement savings. Actual annuity contracts may differ materially from the general overview provided.
Prior to making any decision with respect to an annuity contract, purchasers must review, as applicable, the offering document, the disclosure document, and the buyer’s guide which contain detailed and additional information about the annuity. Any annuity contract is subject in its entirety is to the terms and conditions imposed by the carrier under the contract. Withdrawals or surrenders may be subject to surrender charges, and/or market value adjustments, which can reduce the owner’s contract value or the actual withdrawal amount received. Withdrawals and distributions of taxable amounts are subject to ordinary income tax and, if made prior to age 591⁄2, may be subject to an additional 10% federal income tax penalty. Annuities are not FDIC-insured. All references to guarantees arising under an annuity contract are subject to the financial strength and claims-paying ability of the carrier. This does not constitute legal, accounting or tax advice, and the recipient should consult with his or her legal, accounting or tax adviser regarding the instruments described in this material.
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Annuities and insurance services provided by SIMON Annuities and Insurance Services LLC, an affiliate of iCapital, Inc. Structured investment and certain annuities products and services may be offered through SIMON Markets LLC. Alternative investment products and services may be offered through iCapital Securities, LLC. iCapital Securities LLC and SIMON Markets LLC are each a registered broker/ dealer, member FINRA and SIPC, and an affiliate of Institutional Capital Network, Inc. (“iCapital”). These registrations and memberships in no way imply that the SEC, FINRA, or SIPC have endorsed the entities, products or services discussed herein. iCapital and iCapital Network are registered trademarks of Institutional Capital Network, Inc.
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