With an annuity, look forward to your future knowing that you can put aside and protect your retirement savings, and earn interest on it until you need it. An annuity enables you to convert your savings, such as a 401(k), into a steady stream of income over the long term. Typically used for retirement income, the annuity can also be useful tool for those who have come into a lot of money and need a way to manage it and make it last. An annuity is sometimes referred to a “self-made pension.”

What Is a Fixed Annuity?

A fixed annuity is an insurance contract that guarantees retirement income payments. With a fixed annuity contract, you make one or several payments to an insurance company, which in turn promises to provide you with a fixed stream of income during your retirement through a process called annuitization, regardless as to how the markets are performing.

Accumulation phase: the period during which you make contributions to a fixed annuity (or simply earn interest if you deposited a lump sum).

Distribution phase: the period during which you receive guaranteed payments from your annuity for a set period of years or for the rest of your life, depending on your policy.

There are two basic types of annuities: deferred and immediate.

With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement.

If you opt for an immediate annuity, you begin to receive payments soon after you make your initial investment.

The deferred annuity accumulates money while the immediate annuity pays out. Deferred annuities can also be converted into immediate annuities when the owner wants to start receiving payments.

What Are the Benefits of a Fixed Annuity?

Fixed annuities can provide protected lifetime income and security to your overall retirement plan, including:

  • Tax-deferred growth
  • Guaranteed interest earnings
  • Access to your money
  • Protection from market ups and downs
  • Guaranteed beneficiary benefit that avoids probate

With an annuity, you’re effectively creating your own pension plan for retirement!