What are Fixed Annuities, and How do they Work?

John Stanton |


By: John Stanton

November 15, 2022


Funding a comfortable retirement, with conservative investments, has been increasingly challenging over the past 10 or so years.  Until recently, interest rates have been low on available alternatives, including investment grade corporate bonds, CDs, treasuries, municipal and savings bonds.    

Some clients have found a better rate of return, with guarantees, along with tax deferral benefits, in Fixed Annuities. 

What Are Fixed Annuities?

A fixed annuity is a contract issued by an insurance company, that provides a guaranteed rate of return, and principal guarantee.  The guarantees are made, and backed, by the issuing insurance company.  While there are other guarantees made on these contracts, the important first step is to choose contracts issued by financial strong insurance companies. 

Maturities offered are typically from 3 to 10 years.  Minimum amounts range from $20,000.00 to $100,000.00.  There are penalties, if the money is withdrawn, prior to maturity.  However, there are liquidity provisions, ranging from interest earned, to 10% of contract value, that can be withdrawn penalty free, prior to maturity, on most contracts.         

An example of current interest rates on new contracts range from 4.75% for 3 years, to 5.25% for 5 years, tax deferred.  (1)

Compared to current CD rates of 4.90% to 4.90%, 3, and 5 years, respectively. (2)

How Are Fixed Annuities Used for Retirement?

Using the fixed annuity contracts, combined with CDs, and Bonds, can give you a boost in yield, with a conservative instrument.   A Laddered Strategy may allow shorter maturities maturing, to invest at higher rates, in an increasing interest rate environment. Conversely, in a declining interest rate environment, you lock in the higher yields with the longer maturities. 

The results are a steady income stream, with minimal volatility of principal.

Clients may also consider using a laddered strategy, when developing a pension alternative stream of income in retirement.

The tax deferral works out well, for higher income tax bracket clients who can accumulate the interest in the contracts over a longer term, typically 5 years or more.  

Review All Fixed Income Alternatives, Based on Your Plan

We can help.  We can review your alternatives, and answer your questions on fixed income. And, show you how fixed income works as part of a balanced, consistent,  retirement income plan. 

Schedule a call today!    https://calendly.com/jstanton-1/questionandanswercall


About John

John is the founder of The Stanton Group WP. With more than three decades of experience in the financial services industry, he serves as an advisor for clients, focusing on financial planning and the investment strategies to support their financial plan. Based in Naperville, Illinois, John serves clients in Naperville, Plainfield, Darien, Aurora, Geneva, St Charles, and throughout the Chicagoland area.

Learn more about John’s services by visiting www.stantongwp.com

John can be reached at l 630-445-2380 or email JStanton@seacrestwm.com.


The Stanton Group WP provides investment advisory services through SeaCrest Wealth Management LLC, (the “SWM”) a registered investment advisor. SWM is a registered investment advisor (“RIA”), with the U.S. Securities and Exchange Commission located in the State of New York. SeaCrest Wealth Management, LLC can be reached at (914) 502-1900.

Insurance and Annuities offered through Stanton Group Wealth Partners, Inc. IL,  Insurance License Number 100757645

1. Rate quotes for fixed annuities were obtained from Athene Retirement Services, and Oceanview Life.  

Annuities are long-term savings vehicles that are subject to limitations and conditions, state availability and certain suitability requirements. Please see the applicable product brochure that is available from your licensed insurance professional for details.


2.          Rate quotes for CDs obtained through Charles Schwab Fixed Income Trading.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Investment value will fluctuate, and bonds, when sold, may be worth more or less than original cost. Fixed income securities are subject to various other risks including changes in interest rates and credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.