Fixed Deferred Annuity vs. Variable Deferred Annuities
All annuities other than immediate annuities have a characteristic known as deferral. The purpose of deferral is twofold. First, it refers to money being left in a savings-growth stage over a period of time, also referred to as the accumulation stage. Second, deferral refers to the tax characteristics of deferral allowing money to grow tax-free until it is withdrawn for income. Thus, an immediate annuity is neither deferred for savings-growth nor tax deferral and is therefore not considered a deferred annuity.
**Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values. During this segment, Dick and Eric are referring to Fixed Annuities unless otherwise specified.
So, what is the distinction between variable deferred annuity and fixed deferred annuity? It is very simple. Fixed is when the insurance institution assumes the risk for your principal and accumulation while variable is when you assume the risk for the underlying investments, principal and accumulation.
Fixed Deferred Annuity Characteristics
- Deferred fixed annuities originated in the U.S. approximately 100 years ago
- They can be acquired in periodic, systematic or lump sum payments
- Deferral in fixed annuities allows the value of the annuity to increase
- After deferral period, fixed annuity can produce more income
- Deferred fixed annuities have the added advantage of tax deferral
- They can be annuitized providing a lifetime of income
- Deferred fixed annuities are mostly opposite of immediate annuities since immediate annuities begin income soon after they are purchased in a lump sum
- Deferred fixed annuities are typically invested in high quality A – AAA government and investment-grade bonds with to the client
- Fixed index deferred annuities are never invested into a market index; they are only using the index as a gauge to credit interest to the client
- CD deferred fixed annuity refers to a type of annuity that has a multi-year interest **guarantee. Only bank-issued CDs are FDIC insured
- Deferred fixed annuities are creditor-protected in most states
- Deferred fixed annuities are first **guaranteed by the claims paying ability of the insurer and then each state has a State Insurance Guarantee Association (SIGA) with varying coverage limits
- Check out our deferred fixed annuity calculator
Fixed Deferred Annuity Summary
All deferred fixed annuities enjoy tax deferral with no income tax requirement until withdrawal. This is a definite advantage over many investments like CDs, mutual fund^s and securities oriented investments when considering a long term retirement plan. A long term fixed annuity investment may outperform CDs, bonds and treasuries. Reinvesting money that would otherwise be paid out in tax over an extended period of years is always an advantage. In addition, deferred fixed annuities have several benefits that can be important for retirement planning.
Question: What are Ben Bernanke, the Federal Reserve Chairman’s primary personal retirement assets comprised of?
Answer: Two deferred annuities!