[av_one_full first min_height=\’\’ vertical_alignment=\’\’ space=\’\’ custom_margin=\’\’ margin=\’0px\’ padding=\’0px\’ border=\’\’ border_color=\’\’ radius=\’0px\’ background_color=\’\’ src=\’\’ background_position=\’top left\’ background_repeat=\’no-repeat\’ animation=\’\’ mobile_display=\’\’]
[av_heading tag=\’h3\’ padding=\’10\’ heading=\’What Are Deferred Fixed Annuities?\’ color=\’\’ style=\’\’ custom_font=\’\’ size=\’\’ subheading_active=\’\’ subheading_size=\’15\’ custom_class=\’\’][/av_heading]
[av_image src=\’https://gainerfinancial.com/wp-content/uploads/2017/04/deferred-fixed-annuities.png\’ attachment=\’732\’ attachment_size=\’full\’ align=\’left\’ styling=\’\’ hover=\’\’ link=\’\’ target=\’\’ caption=\’\’ font_size=\’\’ appearance=\’\’ overlay_opacity=\’0.4\’ overlay_color=\’#000000\’ overlay_text_color=\’#ffffff\’ animation=\’no-animation\’][/av_image]
[av_hr class=\’invisible\’ height=\’30\’ shadow=\’no-shadow\’ position=\’center\’ custom_border=\’av-border-thin\’ custom_width=\’50px\’ custom_border_color=\’\’ custom_margin_top=\’30px\’ custom_margin_bottom=\’30px\’ icon_select=\’yes\’ custom_icon_color=\’\’ icon=\’ue808\’ font=\’entypo-fontello\’]
[av_textblock size=\’\’ font_color=\’\’ color=\’\’]
Whave looked at immediate annuities and variable annuities. Now let’s take a look at the other remaining category, deferred fixed annuities. These have all the same tax deferral benefits as the variable annuity, but fixed annuities have an additional guarantee, the guarantee of principal. Some people look at these like cd’s from a bank. After all, the principal is guaranteed. You haven’t exchanged your cash for something else, like shares (only banks and insurance companies have products that don’t require you to exchange dollars for something else).
Under the Fixed Annuity category, there are two main types; fixed and fixed indexed (also known as FIA’s).
First let’s look at fixed. With a fixed annuity, there is generally a guaranteed interest rate. That rate might also include a first year bonus and will always have a guaranteed minimum rate for each year of renewal. When I started in the business in the 80’s, that minimum was 4%, then in the early 90’s it was lowered to 3%. Today most have a guarantee of 1-1.5%. Clients who have those old contracts are very happy about the minimum guarantee these days. Who wouldn’t want to have a liquid account earning 3% tax deferred today? What a great place to keep your cash that would otherwise be in a savings account earning about one half percent! You commit to a particular number of years, and like bonds or cd’s, the longer term usually will give you higher interest. These will earn a declared interest rate each year you hold the contract.
There is one significant variation. That is the “multiyear guaranteed annuity” aka; MYGA. This is like a cd in that you lock in a rate for the number of years selected, instead of having an annually declared rate. Today, there are 5 year contracts paying 2.5-3.1% for 5 years. This can compare favorably with cd’s or short term bonds. After all, 5 year cd’s are paying less than 2% and 10 year treasuries are less than 2.5%!
Pros of a Deferred Fixed Annuities
- High guaranteed interest rate potential
- Some contracts allow for up to 10% penalty free withdrawals
- Principal guaranteed
- No exchange risk
- Won’t lose value if rates increase
Cons of a Deferred Fixed Annuities
- Surrender charges
- MWill not be liquid for a number of years
Want to learn more? Take a listen to Roger\’s Retire Happy podcast. Click the play button below.
Annuities can be confusing, which is why we encourage you to call our office to schedule your free, no obligation ‘get to know you’ meeting. We’ll be happy to answer your questions and see if we are a good fit to help you retire happy.
[/av_textblock]
[/av_one_full]