Retirement income · Culver City and all of California
Fixed annuities: steady growth you can turn into income
A fixed annuity is an agreement with an insurance company. You hand over a sum of money, the company credits it with interest at a rate it declares, and later you decide whether to take it as a lump sum or as income that can last as long as you live.
How it works, in three stages
Ways to take the money out
When you are ready for income, a fixed annuity can usually pay it out in one of a few ways. You choose when you start payments, and the choice is hard to change later, so it is worth talking through.
Who tends to look at fixed annuities
- People within ten years or so of retiring who want part of their savings out of the stock market.
- Widows and single women who want a predictable check alongside Social Security.
- Savers with money in the bank who don't need it for several years and want tax-deferred growth.
What to weigh before you buy
- Time: most contracts have a surrender period of several years. Money you may need soon belongs elsewhere.
- Taxes: earnings are taxed as ordinary income when withdrawn, and before age 59½ the IRS may add a 10% additional tax.
- Inflation: a fixed payment buys less over time. Some contracts offer increasing income options at a cost.
- The insurer: guarantees are only as strong as the company behind them, so look at its financial strength ratings.
- Replacing a contract: if a new annuity or policy would replace one you own, California requires a written replacement notice, and surrender charges or lost benefits on the old contract can cost you.
Questions women ask Janie about annuities
Is a fixed annuity the same as a CD?
No. Both can pay a set rate for a period, but an annuity is an insurance contract, not a bank deposit, and it is not FDIC insured. Annuity earnings grow tax-deferred, while CD interest is usually taxed each year. Annuities also tend to have longer surrender periods.
Can I get to my money?
Most fixed annuities let you withdraw part of the value each year without a surrender charge. Taking more than that during the surrender period can cost a charge, and any withdrawal of earnings is taxable.
What happens to it when I die?
Before income starts, the remaining value usually goes to the beneficiaries you name, often without going through probate. After income starts, it depends on the payout option you chose.
Do I have time to change my mind?
Yes. California gives a free-look period to review a new annuity and return it, and it is 30 days for buyers aged 60 and older. The contract explains exactly what is refunded.