Fixed Annuity

fixed annuity

A stream of unchanging payments for a specific period or for an individual's lifetime, depending on the terms of the annuity contract. Fixed annuities are sold by insurance companies to people who desire a fixed income. Also called guaranteed-dollar annuity. Compare variable annuity. See also hybrid annuity.

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Fixed Annuity

An annuity that allows the annuitant a fixed return for the life of the annuity. Like any annuity, the annuitant buys into a policy, either with a lump sum or premiums over a period of time. When the annuitant reaches a certain age, or retirement (whichever is greater), he/she begins to receive payments. Typically, the insurance company issuing a fixed annuity invests the premiums in low-risk investment vehicles such as bonds. This results in a smaller likelihood that the insurance company will be unable to make the payments, but also exposes the annuitant to inflation risk. See also: Variable annuity.

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Fixed annuity. A fixed annuity is a contract that allows you to accumulate earnings at a fixed rate during a build-up period.

You pay the required premium, either in a lump sum or in installments. The insurance company invests its assets, including your premium, so it will be able to pay the rate of return that it has promised to pay.

At a time you select, usually after you turn 59 1/2, you can choose to convert your account value to retirement income.

Among the alternatives is receiving a fixed amount of income in regular payments for your lifetime or the lifetimes of yourself and a joint annuitant. That's called annuitization. Or, you may select some other payout method.

The contract issuer assumes the risk that you could outlive your life expectancy and therefore collect income over a longer period than it anticipated. You take the risk that the insurance company will be able to meet its obligations to pay.

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Fixed Annuity

What Does Fixed Annuity Mean?

An insurance contract in which the insurance company makes fixed dollar payments to the annuitant for the term of the contract, usually until the annuitant dies. The insurance company guarantees both earnings and principal.

Investopedia explains Fixed Annuity

A fairly good financial instrument for those seeking fixed investment income; this is particularly attractive to retirees.

Related Terms:
• Annuity
• Defined-Benefit Plan
• Income Statement
• Individual Retirement Account—IRA
• Mutual Fund