Fixed Annuity Alternatives

An Overview

  • Variable Annuities
  • Equity Indexed Annuities
  • CDs
  • Money Market
  • Bonds/Treasuries
  • Stock Market
  • 401(k)

There are a handful of annuity and non-annuity alternatives for the potential fixed annuity shopper. If fixed annuities seem too conservative, consider Variable or Equity-Indexed Annuities, they typically provide greater return, albeit at increased risk. If annuities aren't an option at all, consider the following instruments, which may fulfil similar investment objectives: CDs, money market accounts, mutual funds, government bonds, or a retirement account.

To weigh your options comprehensively, consider speaking with a licensed financial advisor, who can compare rates of return with you and suggest the most approriate way to meet your financial objectives.

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Variable Annuities

  • 401(k) supplement
  • Variable yield with potential loss of capital
  • Low liquidity; withdrawal fees
  • Tax-deferred
  • Suitable retirement instrument over long term

A variable annuity is a stock market portfolio contact managed by a broker for an insurance company. Sub-accounts of various risk levels are chosen by the contract owner and pay out interest depending on performance. Typical annuity terms and features apply: tax deferred growth, potential withdrawal charges, and the 10% tax penalty for withdrawal under the age of 59.5.

The key advantage of variable over fixed annuities is their higher potential yield. Variable annuity income comes from asset growth rather than debt instruments, which historically yields better returns. The trade-off is uncertain income and potential loss of capital. For more info, consult the Variable Annuity Guide.

Equity Indexed Annuities

  • Index investing with no downside
  • Minimum yield of 2-3%; variable maximum yield
  • Low liquidity; withdrawal fees
  • Tax-deferred
  • Secure retirement instrument

An equity indexed annuity is an insurance contact tied to an equities indexed, such as the S&P 500. The insurance company guarantees a baseline rate for a cut of the profits. On up years, the investor shares as much as half his earning with the insurance company. On down years, the insurance company pays the 2-3% baseline rate.

Equity indexed annuities strike a balance between variable and guaranteed rates. They give investors a taste of the market while at the same time protecting them from loss of capital.


  • Similar to, but outmatched by annuities
  • 2-5% yield
  • Low liquidity; withdrawal fees
  • Not tax deferred
  • Secure retirement instrument

A certificate of deposit is a bank contract that locks in a fixed interest rate for a period of 1-5 years. At the end of the term, the initial deposit + interest is returned in one lump payout. Interest rates on CDs range from 2-5% and depend primarily on Federal rates. The bank earns money on a CD by re-investing your up-front deposit in higher-yielding government bonds and treasuries, and low-risk equities.

CDs are safe, guaranteed, offer moderate growth with marginal liquidity, and are easy to set up; they're taxed at ordinary rates and feature no tax deferral benefits. Similar in many respects to fixed annuities, CDs are a preferred choice for younger investors, who would incur tax penalties when withdrawing from annuities.

Money Market

  • Ideal as a savings account
  • 2-4% yield
  • High liquidity with no fees
  • Suitable for pre- and post- retirement
  • Very secure, but offers little growth

A money market is a high interest savings account run by a bank or brokerage house. Money markets are secure, FDIC insured, completely liquid, and offer interest rates in the range of 2-4% —substantially higher than ordinary savings accounts. Money markets offer lower interest than CDs and annuities. Moreover, that interest fluctuates daily based on Federal rates.

Money market accounts have moderate minimum balance requirements ($1000+) and may limit withdrawals to several times a month. Even so, they are considered completely liquid, with no withdrawal limits or penalty fees. Money market accounts allow further investments to be made throughout their lifetime and never expire.

Don't Just Shop, Implement a Solid Retirement Strategy

Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor. Request a free, no-obligation consultation today, along with a report of current rates on brand-name annuities.

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Bonds / Treasuries

  • Low, secure growth
  • 2-4% yield
  • Low liquidity; withdrawal penalties
  • Ideal retirement instrument

Bonds and treasuries are government or corporate loan contracts, like high-quality mortgages and federal promissory notes. Bonds backed by stable institutions like the U.S. government are very secure, but offer low interest rates, at 2-4%. Treasures come with short, medium, or long terms, but generally have low liquidity.

Bonds are the ideal retirement savings instrument. As you get older, approaching retirement, more and more of your assets should be transferred from high-growth / high-risk investments, like stocks, to bonds.

Stock Market

  • Highest growth/ highest risk
  • 14% average yield (over very long term)
  • High Liquidity; very low fees
  • Unsuitable retirement instrument

Straight-up stock investment is always an option. Stocks offer the highest growth potential of any investment, but come with the greatest risk. Over the very long term, stocks outperform all other investments, with an average yield of 14%+.

While the stock market is great for bonus investment, and some risk can be mitigated with a balanced portfolio, it is not an advisable retirement saving instrument. Older investors who have already accumulated wealth cannot afford the volatility of the stock market and should seek to preserve their capital with secure holdings like bonds, treasuries, and annuities.

401(k) / IRA

  • Starting point of any retirement plan
  • 7% average yield
  • Very low liquidity with penalties
  • Designed for pre-retirement investing

A 401(k) is a retirement account established through an employer. Employees typically despot a small portion of their monthly paycheck into the 401(k) over their entire career, eventually amassing a hefty retirement savings. Money in the 401(k) is invested in bonds and low-risk equities, depending on the chosen portfolio options.

Although a core component of any retirement plan, the 401(k) is often not enough. If you're looking for a comfortable retirement is a health reserve of discretionary income for travel and hobbies, an annuity can make up for the difference. It's important to note that your savings is not guaranteed against loss in a 401(k) or IRA as it would be in an index annuity.

Can fixed annuities really make the difference between a bare-bones and a dream retirement? Determine for yourself, Request Actual Rates.

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