Can You Lose Money in a Fixed Annuity? [The Surprising Truth]
If you’re putting a large chunk of your nest egg in a fixed annuity, you may be wondering: is my money safe here? Or can I lose money in a fixed annuity?
In this quick guide, we’ll share everything you need to know about fixed annuities and protecting your principal. For many clients, the truth about fixed annuities and safety surprises them.
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What Is a Fixed Annuity?
There are many different types of annuities, so first thing’s first: what’s a fixed annuity?
A fixed annuity is a contract that guarantees a set interest rate for a number of years. The most common fixed annuity contract length with our clients is 5 years, but you can go as short as 1 year and as high as 10 year or even more.
A fixed annuity is a wonderful option for retirees and senior clients. Why? The interest rates are more competitive than a bank CD or savings account, but you don’t have to worry about the turbulence of the stock market.
Can Fixed Annuities Lose Money?
Let’s get right to it: can a fixed annuity actually lose money? The answer is no!
The insurance company will pay you a set interest rate no matter how the stock market performs. If the stock market tanks, your fixed annuity will not lose money. It’ll keep growing at your guaranteed rate.
Fixed annuity rates are typically about 8-9x more competitive than an average bank CD.
What About Surrender Charges?
A fixed annuity is a contract between you and an insurance company. The insurance company is guaranteeing a set interest rate for the length of the contract – that’s their end of the deal.
Your end of the deal is promising to keep your money in the annuity for the length of the contract. If you pull your money out early, you will be subject to surrender charges.
Surrender charges vary from company to company, but in general, they decrease over time.
As an example, if you deposit $100,000 for a 5-year contract and pull everything out in Year 3, you may have to pay a surrender charge of 8%, or $8,000.
The exact percentages will vary from company to company, and you will have that information once you narrow down which carrier you're interested in.
What If I Die?
Fixed annuities come with a death benefit, but how that death benefit works will vary from carrier to carrier.
Some annuity companies pay the account value, while others pay the surrender value.
In addition, many companies offer several settlement options to the beneficiary. A common option is spousal continuation. In this case, if you die, your spouse just continues that annuity contract.
As you can tell, many details about fixed annuities are dependent on which annuity company you choose.
Please contact our office at 217-423-8000 for a no-obligation appointment. One of our licensed sales agents can provide education on fixed annuities along with all of the specifics.
While you might still have some questions about what a fixed annuity is or how it works, hopefully this guide has helped clear things up for you.
A fixed annuity can be an ideal addition to your retirement financial plan. If you're interested in learning more about fixed annuities, don't hesitate to schedule a free consultation today!
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