Fixed Annuity

Example

“Worried about market volatility affecting her retirement income, Susan chose a fixed annuity that guarantees her $2,000 monthly payments for life starting at age 65.”

Memory Tip

Think 'Fixed = Guaranteed' - a fixed annuity provides fixed, guaranteed payments that don't change with market ups and downs.

Why It Matters

Fixed annuities provide guaranteed retirement income that you cannot outlive, protecting against the risk of running out of money in retirement. They offer peace of mind for conservative investors who prioritize income security over potential higher returns, and serve as a foundation for retirement planning alongside Social Security and other benefits.

Common Misconception

Many people think fixed annuities are poor investments because they offer lower potential returns than stocks or mutual funds, but they're actually insurance products designed for income security, not wealth accumulation. The primary value is the guarantee of lifetime income and protection against market risk, not maximizing investment growth.

In Practice

A 60-year-old invests $200,000 in a deferred fixed annuity with a 3% guaranteed rate. After five years of growth, his account value reaches approximately $232,000. At age 65, he begins receiving guaranteed monthly payments of $1,350 for life. Even if he lives to 95 and receives payments totaling $486,000, the insurance company is contractually obligated to continue payments, providing longevity protection that other investments cannot match.

Etymology

The term 'annuity' comes from Latin 'annuus' meaning 'yearly,' originally referring to annual payments, while 'fixed' indicates the guaranteed nature of the returns and payments.

Common Misspellings

Related Terms

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