Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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When is a fixed annuity a good choice?

A fixed annuity is a good choice if you want to invest for your retirement, you don’t want to take a risk, but you still want to get a good return on your investment. This doesn’t mean that a fixed annuity is for everyone.

Because it is a no risk investment, your return will not be nearly as large as it would if you invested in something that has some risk to it.

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A fixed annuity is an annuity that guarantees a specific return on your investment no matter how the economy is doing, and no matter how the investment your insurance company makes for the annuity is doing. Typically, when you purchase an annuity, you are agreeing to receive a specific return on your investment with a maximum and minimum return defined.

While this guarantees that you will receive a specific amount of money, if your investment yields a higher than expected rate, the insurance company may be entitled to the larger investment. If this is the case, it will be stipulated in your annuity contract, so be aware of the small print!

How is a fixed annuity different from a variable annuity?

In principle, there is no difference between a fixed and variable annuity in terms of the fluctuation of the investment made in the name of the annuity. However, the fixed annuity has a guaranteed return on your investment where a variable annuity doesn’t.

Think about it this way. Two people purchase an annuity from Acme Insurance Company. One chooses to invest in a fixed annuity and the other invests in a variable annuity.

The insurance company invests the monies from both annuities into the same thing, but the investment doesn’t do well. The person with the fixed annuity still earns their guaranteed interest; the person with the variable annuity earns no gains.

Conversely, if the investment does exceptionally well, then the person with the variable annuity will see a higher return on their investment while the person with the fixed annuity will still get the same guaranteed amount, although it will be a lesser amount.

There are also more annuity fees associated with purchasing a variable annuity. You will have to pay account maintenance fees as well as larger start up fees and commission fees. Many fixed annuities have no fees at all or small commission or load fees when the initial investment is made.

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Should you purchase an immediate annuity or a deferred annuity?

In order to understand what option is best for you first you need to understand the difference between immediate and deferred annuities.

An immediate annuity is an annuity that starts paying immediately after you make your initial investment. You may be wondering what the purpose is of this type of annuity, but it’s simple. If you have a large sum of money to invest, then you can guarantee yourself some income for the rest of your life.

When you choose a deferred annuity, you are investing smaller sums of money that will grow in interest over time. You can choose a single premium deferred annuity that requires a larger investment, but you will still be waiting at least 10 years for that investment to start paying off.

An immediate annuity can be used to guarantee yourself some income from any age or you can choose to invest at retirement age to ensure that you have a certain monthly income until the day you die.

A deferred annuity needs to be invested in at least 10 years before you retire, longer if you plan on using a flexible premium option that has you investing money over time rather than in one lump sum.

In addition, the deferred annuity pays until the money runs out while an immediate annuity never stops paying, even if you far outlive your initial investment.

Where should you invest in a fixed annuity?

You can choose to invest in an annuity on your own by searching for sites online that allow you to make your own investments or you can use an investment agency such as an insurance company, bank, brokerage house and more.

The easiest way for you to make a good investment is to use a professional. While there will be fees involved, using a professional will take all of the guesswork out of the process.

Choosing the right company will ensure that you get the lowest fees possible. The easiest way to do that is with our free quote tool. Compare companies right now to see what you annuity quotes they will offer you today!