Fixed Payment Annuities- An Income you Cannot Outlive

There is no such thing as a “safe” investment. There are always risk, market volatility and inflation, no matter how you invest, but if you want a guaranteed stream of income while forgoing market risks, perhaps a fixed payment annuity is for you. 

A fixed payment annuity is essentially a contract with an insurance company guaranteeing a stream of payments (annuities) over a specified period. The contract first requires that you pay an upfront premium (lump-sum).  There may also be a number of payout options that are available to you.  There are commissions and fees associated with the purchase. You should make sure that you fully understand all of the options costs and fees associated with an annuity contract.

A fixed payment annuity will provide you with an income for a specified time period at a contracted interest rate.  A fixed payment annuity is considered a long-term investment and is not for short-term gains. Fixed payment annuities are predictable as you will receive a contracted (known) payment every month, and it is because of this that many will use fixed payment annuities to supplement their retirement income. However, though fixed payment annuities forgo market volatility and are essentially risk-less, there are risks associated with them.

An insurance company sponsors fixed annuity investments. Therefore, your investment and cash flow are dependent on the financial health of the insurance company. You should check the insurance company’s rating before signing the contract.

There is currently nothing guaranteeing the payment of your principal lump sum if the insurance company defaults. However, annuities can differ from state to state so be sure to check with your state insurance commissioner. Another risk to consider are the various payout options. If the annuity holder passes away, there is no guarantee that you will get the initial lump sum payment returned to you.  In this case, there is no guarantee to get the initial lump sum payment back. 

Something else to consider is if you change your mind after signing a contract there may be ¨surrender charges¨ incurred to get your money back, depending on when you change your mind.  On top of this, fixed annuities do not factor in inflation. Because of this, your annuities could be less valuable over time. A fixed income annuity is not for everyone. Make sure you get a suitability analysis done to see if this type of investment is right for your financial goals and future income needs. Contacting your state insurance department can help you navigate the facts and figures you need to know before making this investment. 

There are different types of annuities and doing your research upfront can help you decide which annuity and insurance company is best for you. While you are deciding on a fixed payment annuity or you have already chosen to invest, be sure to become acquainted with your contract as it will control your interest rates, costs, fees, annuity payment, and payment schedule.

 A fixed payment annuity is an investment that offers a steady flow of income over your desired time period. With this type of investment, you know how much you are investing and you know how much you will be receiving in return. It is due to these unique characteristics that many will choose to invest in a fixed payment annuity. The words ´investment´ and ´guaranteed income stream´ do not fall in the same sentence often, if ever. However, if you are looking for an income you can not outlive, a fixed payment annuity may be for you.