5 Benefits of Having a Fixed Annuity After Age 65
A fixed annuity might be the perfect place to park your money after age 65. It’s safe from the stock market’s volatility and comes with no fees or risk.
I've gathered five annuity benefits retirees over age 65 should know.
Originally published April 8, 2020. Updated May 3, 2022.
But First, What’s a Fixed Annuity?
A fixed annuity is a retirement savings vehicle that allows you to earn a return on your money over a set number of years. There are several different types of annuities, but the most popular one – by far – is called a MYGA.
For some perspective, about 8 in 10 of our annuity clients choose a MYGA.
A MYGA is a Multi-Year Guarantee Annuity, meaning you have a guaranteed rate of return over several years. The most common contract length is 5 years, but you can also choose other lengths, like 3 or 10 years. It’s relatively typical to earn between 2-3.5% interest, but that fluctuates depending on how great the market is doing.
Fixed annuities are not technically an investment, because you’re not investing in the stock market. Instead, you’re putting down a deposit with the insurance company, and they are guaranteeing you an interest rate in return.
A typical example is a 5-year contract in exchange for a 3% return. When the market is doing great, you’ll see closer to 4%, And when the market is doing poorly, like during ’08 or the coronavirus pandemic, you’ll see rates closer to 2.5%.
Benefit #1: You don’t lose all of your savings when the stock market tanks.
If you have all of your retirement savings tied up in the stock market, you’re always a little on edge. There’s the lingering possibility that the market could drop, and you’d lose years of savings.
That fear came true for many when the coronavirus disease, or COVID-19, spread across the world. COVID-19 brought with it economic volatility, and the market dropped upwards of 30%. You can see that dip at the beginning of 2020 in the following chart:
With a fixed annuity, you don’t have to obsess over how the market is doing that day, and you certainly don’t have to worry about losing all your savings overnight.
Fixed annuities offer guaranteed contracts, so even if the market tanks, you’re still earning interest on your deposit.
Benefit #2: You earn more interest than you do at the bank.
No matter how the world is doing, the savings account doesn’t even beat the rate of inflation in our country, which is between 2-2.5% per year (StatBureau.org). In other words, if your money is sitting in a savings account, you’re losing money.
While you’d hope that CDs or a Money Market would be much higher, they leave much to be desired. In March 2020, the average interest rate offered on a 5-year CD was 0.63%. The Money Market was much worse, with the national average sitting around 0.1% (FDIC).
While some banks promise high yields – even “5x the national average” – they still don’t beat the rate of inflation.
A fixed annuity on a good day offers around 4% interest in a 5-year contract, and on a bad day, it’s closer to 3%. Either way, you’re earning more with a fixed annuity than you would at the bank.
Benefit #3: You don’t have to pay any fees.
We’re talking about fixed annuities here, but other kinds of annuities get a bad reputation from their high fees. Variable annuities are based on the performance of the stock market, and they typically come with fees. It’s possible to lose money with a variable annuity.
While fixed annuities do have surrender charges – it is a contract after all – they don’t have any fees. You won’t have to worry about losing money with a MYGA. Many retirees appreciate the predictability. When you make your deposit, you know exactly how much money you’ll be making each year; there are no surprises.
Benefit #4: You can still access your money.
A big concern for retirees is the ability to access their money. If you need some of the money in the annuity to live on – or to pull out for a vacation – most offer withdrawal privileges. It depends on the company, but you can often withdraw 5-10% of your deposit per year. Some companies also give you access to the earned interest.
If you’re interested in fixed annuities, we can show you the current rates as well as which companies offer the best withdrawal privileges. If you don’t need access to your money, you can usually earn a little bit more on the contract.
Benefit #5: Annuities can help you avoid probate at death.
Probate is the legal process of proving a will as a valid public document. It involves making sure the inheritance goes to the right people.
Each state has different laws about probate, but one thing’s for sure: probate is expensive, and it’s time-consuming. Probate can cost from 3-7% of the total estate value.
Here’s the good news: when you purchase an annuity, you’ll name a beneficiary. When you die, your contract will pass over to that named beneficiary and will avoid probate.
There are different ways to pass on your annuity at death, including:
- The full account value is paid out to the beneficiary at death.
- Spousal continuation – this just means if the spouse is listed as the beneficiary, they can continue the annuity.
You’d understand your specific death benefit options once you narrow down the companies in your area.
Consider a Fixed Annuity After Age 65
A fixed annuity is, in our opinion, one of the best places for retirees to put their hard-earned savings. You earn more interest than the bank, you skip the risk of the stock market, and you can sleep well at night knowing you’re always making a little on your money.
Some retirement savings products are complicated to understand, but a MYGA is simple, which is why so many of our clients enjoy it. You can start a MYGA with as little as $5,000-$10,000, and you’re re-insured for up to $250,000.
Whether you’re getting ready to retire and need to roll over a 401(k) or IRA or you’ve had your money in the bank and want to start earning some interest, consider a fixed annuity.
Our team here at Medicare Allies is ready to help you make the right decision for your life savings at any time. Feel free to give us a call at 833-801-7999, and we will be happy to guide you through the decision-making process.
Annuity Options for Adults Over 60
There is a happy medium between the gains of the stock market and the safety at the bank. The right annuity can safely grow your retirement savings with no risk.Learn More
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