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7% on a Fixed Annuity? Don't Believe It.

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02.01.2020

Can you earn 7% on a fixed annuity, guaranteed? Online ads often make this promise.

Unfortunately, those ads are misleading. They’re not completely false, but they set unrealistic expectations. We have to talk clients back down to reality.

The truth is complex. Some annuities do indeed offer a 7% rate guarantee. But there’s a catch. That doesn’t guarantee the annuity’s actual return. Instead, it guarantees the growth of an income account value created by an optional rider. It’s not money you can withdraw.

It sounds too good to be true, and it is.

Buying a lifetime income rider creates the income account value, which grows at a guaranteed annual rate of 4% to 7%. The income account value is used to calculate the amount of future guaranteed lifetime income payments. Most insurers charge an annual fee of about 1% of the annuity value for this option, typically available with indexed annuities.

That’s why some annuity marketers get away with claiming a misleading 7% return. Those ads are usually placed by marketing firms that sell the leads to annuity agents.

The top rate for a five-year fixed-rate annuity, as of December 2019, is 3.71%, according to........

© Kiplinger