Annuities are the only financial instrument that pays no matter how long you live, and fixed annuities are among the most popular annuity products.
Fixed annuities come in a variety of shapes and sizes. It can be divided into five categories:
- Single Premium Immediate Annuity (SPIA)
- Deferred Income Annuity (DIA)
- Qualified Longevity Annuity Contract (QLAC)
- Multi-Year Guarantee Annuity (MYGA)
- Fixed Indexed Annuity (FIA)
What Exactly is a Fixed Annuity?
Fixed annuities can be defined based on the type. Income products include SPIAs, DIAs, and QLACs, which provide you with a lifetime income stream for the rest of your life. Your life expectancy when you make the payments is the fundamental pricing method.
Multi-Year Guarantee Annuities (MYGAs) are the annuity industry’s version of a Certificate of Deposit (CD). It will pay a predetermined interest rate for a certain amount of time. Like a CD, you can lock in an interest rate between 2 and 10 years. Non-IRA funds grow tax-deferred in an MYGA, making it different from a CD. Even if you don’t take it out, the interest on a CD is taxed annually.
A Fixed Indexed Annuity (FIA) interest is calculated using a specific index, such as the S&P 500. These aren’t commercial goods. Unfortunately, they are misrepresented as market products. It’s a fixed annuity and not an investment. They aren’t horrible items since they’re basic protection CDs‘ end of the story.
Is An Investment In Fixed Annuities A Good Idea?
It all depends on what you want the annuity to do. Fixed annuities are safe investments, and they should be bought for long-term income or principal protection.
SPIA should be used for revenue that begins 30 days after the policy’s issue date and continues for a year. If you desire guaranteed income after 13 months or for the next 40 years, DIAs should be used. QLACs are DIAs utilized to generate future income and minimize Required Minimum Distributions (RMDs) in traditional IRAs. You can also make your spouse a lifetime income stream guarantee person and pay them for the rest of their lives.
The other categories are fixed annuities with principal protection. MYGAs have a set rate like a CD, and FIAs have historically averaged CD-like returns. Both safeguard the principal. Unless you add a rider, none has an annual charge. You’ll simply protect the principal and receive a CD-like return.
Although FIAs are marketed as investment vehicles, which isn’t true. If you possess one, you already know they aren’t. Please don’t buy one for market growth because they were designed in 1995 to compete with CD returns, and that’s what they do precisely. So, are fixed annuities a wise choice? It depends on how you want to invest the funds, the type of transfer risk you want to avoid, and the contractual guarantees you want to achieve.
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Bio:
After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely withhelping them pursue the most comfortable financial life possible.Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.Aaron can help you and your family to create, preserve and protect your legacy.That’s making a difference.
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