Do Annuities Offer Guaranteed Returns?

Total deferred annuity sales reached $209.1 billion in 2020. Deferred annuities are just one type of annuity available for investment. You have the option of either immediate or deferred. 

Then within these two categories, there are variable and fixed annuities. If you’re concerned about your risk tolerance and guaranteed returns, it’s important to understand the difference between the different types of annuities. 

Learn about the different annuities so that you can make an informed decision. 

Fixed Annuity

If you want the security of receiving a guaranteed minimum rate of return, then consider purchasing a fixed annuity. These annuities provide a fixed series of annuity payments. A licensed broker like TRKing can help you purchase this type of annuity. 

When you own a traditional fixed annuity, you will never lose money. However, you will need to hold the annuity to maturity and not withdraw any money early. The rate quoted is the rate you get.

Typically, fixed annuities have a maturity timeline of three to ten years. You have two options at the end of your annuity’s time period. You could withdraw the money without penalty or roll it over into another one. 

Could You Lose Money? 

It’s unlikely that you will lose money. The only reason you would lose money is if you withdraw your money early and incur penalty fees. 

Variable Annuity

A variable annuity can allow you to enjoy a greater return on your investment. However, this is a chance based on the performance of the mutual funds that the annuity is invested in. If those mutual funds don’t perform well, you won’t receive guaranteed returns. 

Some variable annuities have contractual guarantees. If you want the guaranteed ability to withdraw money, you need an annuity contract with this right built into it. Some have income-based contractual guarantees that require the insurer to let you make withdrawals starting at a certain age. 

Could You Lose Money? 

Yes, you could lose money. Your risk is about the same as if you owned the underlying investment. You could lose money if you withdraw early or the investment performs poorly. In some situations, you could also lose money if you die younger than expected. 

Income Annuity 

An income annuity allows you to grow your money tax-deferred for the rest of your life. The annuity contract will require a lump sum payment to the insurance company. The payments made to you can start right away or at some point in the future. 

Could You Lose Money? 

It’s unlikely that you would lose money when investing in an income annuity. The only time you could lose out is when you die younger than expected. 

Enjoy Guaranteed Returns

If you want to enjoy guaranteed returns from your investment, then purchasing a fixed annuity is the better option. This is because you know exactly what your return will be when you purchase your annuity with no unknowns or surprises throughout the course of the annuity. 

Check out our other financial articles for more helpful money management advice.