fixed 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.

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.

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.

References in periodicals archive ?
These solutions may seek to appeal to clients who want the stability of a fixed income annuity but the growth potential of a variable option.
* Note, that like traditional pension plans, a fixed income annuity provides guaranteed consistent payments that won't change, even with fluctuations in the market.
Here, a deferred fixed income annuity is used to protect against the risk of not knowing how long the client will live (i.e., the longevity risk).
INCORPORATING A FIXED income annuity into a retirement income account yields greater long-term wealth and income security for boomer investors than does a portfolio comprising equity and bond investments alone, even in an "up" market.
Account A, which had no fixed income annuity component and was made up of U.S.
Account B, which comprised the same 50/50 allocation as Account A except that, at the start, 33.3% of the account (all from the bond portion of the investment portfolio) was used to purchase a life-only fixed income annuity, had a liquid value of $667,688, almost 7 times the original deposit, at the end of the 27-year period.
bonds (30%) and an initial purchase of a life-only fixed income annuity (20%) with additional fixed income annuity purchases in the second through seventh years, had a liquid value of $735,292, more than 7 times the original deposit, at the end of the 27-year study period.
Variable annuities with floor payments have been around for some time, prompting the relatively new fixed income annuity with a floor and an equity index account kicker as a way to offset the effects of inflation.