One of the most important differences among
fixed
annuities
is their
return,
or the percentage of
principal
that you earn.
The current return is the rate you’re offered
at purchase. It’s revised from time to time, sometimes up
and sometimes down, based on interest rates in the economy as
a whole. Typically, the rate is higher than the rate on a
certificate
of deposit
or
money market fund.
The guaranteed rate is the lowest amount you can
ever earn, even if interest rates in general are lower.
Remember, though, that an annuity company’s first-year rates
tend to be higher than its renewal rates, which can make accurate
comparisons difficult. Look for the rates the company is paying
on its older policies to get a sense of what you might expect
at the first adjustment.
If you’re comparing fixed immediate annuities,
look at the regular income a company offers. It will depend on
the amount you invest and your expected lifetime, or the length
of the term for which you’ll be receiving payments. But
each contract will offer a different amount.
By comparing two or more annuities with the same
contribution amount and term, you can determine which offers a
better rate of return. Often the difference reflects what you’re
paying in fees or commissions. Some companies offer significantly
less expensive fixed annuities than others.
