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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.