Why Might an Individual Choose a Fixed Annuity?

Why might an individual choose a Fixed Annuity?

Good question.

But the answer is more specific than most people think.

There are many types of Fixed Annuities, and they are all designed to solve for specific contractual goals.

Key Takeaways

• Fixed Annuities are transfer of risk** products**
• They solve for Principal Protection, Income for Life, Legacy, and Long-Term Care
• They are not designed for market growth or stock market returns
• The right Fixed Annuity depends on what you want the money to contractually do
• MYGAs can provide Principal Protection with fixed rates
• Lifetime income annuities can create an income floor you cannot outlive

What Is a Fixed Annuity?

A Fixed Annuity is a contract issued by a life insurance company.

It is not a stock market product.

It is not a growth product.

It is a transfer of risk strategy.

You are transferring risk to the insurance company to solve for a specific goal.

The Four Reasons Someone Chooses a Fixed Annuity

There are four reasons someone might choose a Fixed Annuity.

I use the acronym PILL:

• P stands for Principal Protection
• I stands for Income for Life
• L stands for Legacy
• L stands for Long-Term Care

That’s it.

There is no G for growth.

There is no S for stock market.

There is no B for Bitcoin.

There is no R for reasonable rate of return.

Reason 1: Principal Protection

Some people choose a Fixed Annuity because they do not want to lose money.

If that is the goal, then a Multi-Year Guarantee Annuity can make sense.

That is the annuity industry’s version of a CD.

It provides:

• Principal Protection
• a contractual rate
• no market exposure

That is a clean, simple use of a Fixed Annuity.

Reason 2: Income for Life

The biggest reason many people choose Fixed Annuities is lifetime income.

Only annuities can provide income for as long as you are breathing.

That income can come from products like:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• Qualified Longevity Annuity Contracts
• Income Riders

That is how you build an income floor.

Reason 3: Legacy

Fixed Annuities can also help with legacy planning.

That means leaving money to beneficiaries.

With lifetime income products, you can structure the contract so that if you die early, unused money goes to your listed beneficiaries.

The annuity company does not have to keep the money if the contract is structured correctly.

Reason 4: Long-Term Care

Some annuities are designed to help solve for long-term care.

That is one of the four reasons annuities exist.

But like everything else, you have to look at the contractual guarantees and understand exactly what the policy will do.

The Two Questions That Matter

Before choosing any Fixed Annuity, ask two questions:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

Those two answers determine whether you need an annuity at all.

And if you do, they determine which type fits.

When a Fixed Annuity Does Not Fit

If your goal is market growth, a Fixed Annuity does not fit.

If your goal is stock market returns, a Fixed Annuity does not fit.

If your goal is a high “reasonable rate of return,” a Fixed Annuity probably does not fit.

Annuities are owned for what they will do, not what they might do.

Where to See Real Guarantees

Once you know what you want the money to contractually do, the next step is seeing the real numbers.

What would the income be?

What would the guarantee be?

What would it take to fill the income gap?

That’s something you can compare using our annuity calculators here: https://www.stantheannuityman.com/ annuity-calculator/

The Bottom Line

Someone might choose a Fixed Annuity for one of four reasons:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

If you do not need one of those, you probably do not need a Fixed Annuity.

If you do, then the right product depends on your goal, timeline, and the contractual guarantee you need.