What is a Fixed Annuity?

A guaranteed fixed annuity ,also known as a MYGA, is a contract between an individual and an insurance company that guarantees a fixed rate of return over a set period of time. An annuity is essentially a type of insurance policy that provides a steady stream of income in exchange for a lump sum payment. Fixed annuities offer a fixed interest rate for the duration of the contract, which can range typically from two to ten years.

Positives of a Fixed Annuity for Seniors:

1. Predictable Income: A fixed annuity provides a predictable stream of income that can help seniors meet their monthly expenses.
2. Tax-deferred Growth: Earnings on a fixed annuity grow tax-deferred until withdrawal, which can result in significant savings for seniors in high tax brackets.
3. Guaranteed Principal: The insurance company guarantees the principal amount, which means that seniors can rest assured that their investment is secure.

Negatives of a Fixed Annuity for Seniors:

1. Limited Liquidity: Fixed annuities typically come with early withdrawal penalties and surrender charges, making them less flexible than other investment options.
2. Limited Growth Potential: Fixed annuities offer a fixed rate of return, which means that there is limited growth potential compared to other investment options like stocks.

What is a Bond?

A bond is a debt security issued by a corporation or government entity to raise capital. When an investor buys a bond, they are essentially loaning money to the issuer for a set period of time. In return, the investor receives interest payments at a fixed or variable rate for the duration of the bond.

Positives of a Bond for Seniors:

1. Stable Income: Bonds provide a stable source of income that can help seniors meet their expenses.
2. Diversification: Bonds can provide diversification to a portfolio, which can help reduce overall risk.
3. Relative Safety: High-quality bonds, such as U.S. Treasury bonds, are considered relatively safe investments with a low risk of default.

Negatives of a Bond for Seniors:

1. Interest Rate Risk: The value of a bond can be negatively affected by changes in interest rates. When interest rates rise, the value of existing bonds decreases, and vice versa.
2. Inflation Risk: The fixed interest rate of a bond may not keep pace with inflation, which can erode the purchasing power of the investor’s income over time.
3. Default Risk: Bonds issued by corporations or less creditworthy entities may carry a higher risk of default, which can result in significant losses for investors.

Fixed annuities and bonds can both be attractive options for seniors seeking income and stability in retirement. Fixed annuities offer a predictable stream of income and guaranteed principal, but with limited liquidity and growth potential. Bonds provide stable income and diversification, but with interest rates, inflation, and default risks. Ultimately, the choice between the two will depend on an individual’s financial goals, risk tolerance, and overall financial situation.

Pinnacle Financial Services can provide you with valuable assistance. Our team of annuity experts specializes in fixed annuity cases, offering a range of tools and services to help you with all of your client’s needs.  Contact us today for a free case analysis on your next fixed annuity case.