Annuity basics: Is a fixed annuity right for you?
If retirement is drawing near—or you’re already enjoying it—the last thing you should be worrying about is money. A fixed annuity helps provide income security by protecting your premium and safely growing your money tax-deferred.
Learn more about a fixed annuity, and see if it could be a good fit for your retirement saving strategy.
Enjoy a fixed rate of return on your investment
As with all annuities, a fixed annuity is an insurance contract. It protects your premium, and helps your money grow tax-deferred at a guaranteed rate of return. It can also be used to create guaranteed income in retirement. Here’s how it works:
- You purchase a fixed annuity either in a one-time lump sum or a series of payments.
- Your money earns interest at a guaranteed rate for a specific period of time—typically 1 to 5 years or more, depending on the terms of the contract.
- When you’re ready to receive income, you can choose to receive a guaranteed set payment amount, or take withdrawals when you choose.
When your guaranteed rate period ends, the interest rate may stay the same or change. Your new interest rate will never be less than the guaranteed minimum rate defined in your contract.
Benefit from tax-deferred growth
You don’t pay taxes on your earnings until you make a withdrawal or receive an income payment. Both your premium(s) and any earnings benefit from compounding interest. This gives you the potential to earn more faster than with comparable taxable investments.
Fixed annuities offer guaranteed interest rates that are unaffected by market fluctuations. You’ll always know how much your money is earning—with no risk of losing any of your original premiums.
Access your money
Fixed annuities allow free annual “surrender amounts” that you can withdraw if unexpected expenses arise. If you exceed this amount, you’ll typically pay a surrender fee.
Decide if a fixed annuity is right for you
Consider a fixed annuity if you want to:
- Diversify your finances without worrying about the ups and downs of the stock market. Get a fixed rate of return for a fixed period of time.
- Enjoy tax-deferred growth on your investment while you save for the future. You don’t pay taxes on your earnings until you make a withdrawal or receive an income payment.
- Provide for your loved ones when you’re gone. Fixed annuities generally include death benefit protection. If you die before payments begin, your beneficiary will receive at least the amount you contributed minus any withdrawals taken.
Guarantees are based on the claims-paying ability of Principal Life Insurance Company.
This document is intended to be educational in nature and is not intended to be taken as a recommendation. Consult with your financial professional to discuss retirement planning.
Annuity products and services are offered through Principal Life Insurance Company, a member company of Principal, Des Moines, Iowa 50392.
Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.