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What You Need To Know About Annuities

Figuring out your financial retirement plan should be a top priority for everyone.  However, it can sometimes feel like dealing with a different language due to all the different retirement products available.  If you are wondering how fixed deferred annuities might fit into your retirement plan, keep reading for answers to the most common questions.

stacked coins representing how annuities grow

What Is an Annuity?

Simply, an annuity is a form of fixed income. (Money)

While there are many different types of annuities, they all follow the same basic format.

Annuities have two phases. 

An accumulation phase, during which the purchaser funds the annuity with either periodic payments or a lump-sum payment. 

The second phase is the payment phase, during which the purchaser receives a fixed payment for a fixed period of time or the remaining lifetime of the purchaser.  

The length of time an annuity is paid out over will affect the size of the payments, with shorter terms yield larger payments.

What Is a Fixed Annuity?

A fixed annuity allows you to know the value of your payments upfront. (Investopedia)

The money that is put into the annuity during the accumulation phase earns interest at set rates.

The purchaser of the annuity is guaranteed to pay no less than the minimum interest rate specified in the plan. 

Generally, the payment amount is set at the start of the payout period and does not change for the annuity’s life.

A fixed annuity can either be deferred or immediate. 

As the names suggest, an immediate annuity starts paying the purchaser sooner than a deferred annuity.

However, the payments may start up to a year after paying the premium. 

Deferred annuities spread out the accumulation period over time, delaying the time between when you start paying premiums and when you start receiving payouts.

paper cutouts of man with umbrella and rolled up cash

What Are the Advantages of Annuities?

Fixed deferred annuities offer a safe and steady investment return. 

The return is lower but less risky than higher-yielding options; therefore, annuities may appeal to risk-averse investors. 

Annuities grow tax-deferred, meaning you won’t pay taxes on the interest earned by your annuity allowing your savings to grow faster. 

Another advantage of an annuity is that there is no contribution limit, allowing you to put away more money for retirement than just an IRA or 401k plan. 

A fixed deferred annuity can be a great asset to a retirement plan. 

Always speak with a qualified financial advisor about which types of financial products would be best for your retirement.

About Julee: Julee Morrison is an experienced author with 35 years of expertise in parenting and recipes. She is the author of four cookbooks: The Instant Pot College Cookbook, The How-To Cookbook for Teens, The Complete Cookbook for Teens, and The Complete College Cookbook. Julee is passionate about baking, crystals, reading, and family. Her writing has appeared in The LA Times (Bon Jovi Obsession Goes Global), Disney's Family Fun Magazine (August 2010, July 2009, September 2008), and My Family Gave Up Television (page 92, Disney Family Fun August 2010). Her great ideas have been featured in Disney's Family Fun (Page 80, September 2008) and the Write for Charity book From the Heart (May 2010). Julee's work has also been published in Weight Watchers Magazine, All You Magazine (Jan. 2011, February 2011, June 2013), Scholastic Parent and Child Magazine (Oct. 2011), Red River Family Magazine (Jan. 2011),, and more. Notably, her article "My Toddler Stood on Elvis' Grave and Scaled Over Boulders to Get to a Dinosaur" made AP News, and "The Sly Way I Cured My Child's Lying Habit" was featured on PopSugar. When she's not writing, Julee enjoys spending time with her family and exploring new baking recipes.
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