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A Fixed Annuity Might Be Best For You

It’s hard to say that fixed annuities are perfect for anyone, but they come close for many people. In an article for Marketwatch, Andrew Murdoch bravely asked “Are you the perfect person for fixed annuities?” Many people turn to fixed annuity products because they are simple and straightforward in comparison to other annuities that carry riders and higher fees. Fixed annuities guarantee you an interest rate and usually pay more than a bank CD. They don’t always keep up with inflation, but people who buy fixed annuities buy them more for their guaranteed payouts and interest. People whose main concern is losing money typically like bank CDs and fixed annuities. This is especially true now because inflation has been low for some time.

Total annuity sales were $58.5 billion during the third quarter of last year, which was about the same as the second quarter and not even 3% higher than third quarter 2014 sales. Variable annuities were the reason that overall annuity sales didn’t have strong gains last year. Third quarter variable annuity sales of $32 billion were down 10% from the second quarter and down 9% from the same quarter in 2014. On the contrary, fixed annuity sales were the highest that they have been in 6 years during the third quarter of 2015. They had a 16% increase from the second quarter and a 22% increase from the same quarter in 2014. These strong sales included both fixed income annuities and fixed indexed annuities, the latter of which is more complex but still offers low risk. The Insured Retirement Institute’s President, Cathy Weatherford, said that investors were scared away from variable annuities due to a volatile stock market and high selloff.

Multi-Year Guaranteed Annuities (MYGA) and adjustable-rate fixed annuities are the two types of fixed income annuities available. Murdoch recommends that people stick to MYGAs rather than the adjustable-rate products because MYGAs guarantee your interest and pay lower commissions. Although adjustable-rate fixed annuities often pay a very high rate one year, they pay a lot less after that and more often than not average less than MYGA rates. MYGAs do have surrender fees if you take your money out before the surrender period is up, just like other annuity products. Surrendering your fixed annuity early can subject you to MVAs (market value adjustments). These adjustments change based on the changing interest rates. No matter what type of annuity product you have, it’s best not to surrender the product before the surrender period is up anyways. Most people who buy fixed annuities keep them for the duration because of the peace of mind they offer. A fixed annuity might be ‘perfect’ for you if you seek a simple investment that guarantees a favorable rate of return and protects your money.

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