May 26, 2022

Annuities: The Basics

What is An Annuity Investment

Annuities are one of many financial tools available to investors, in this case provided by insurance companies. Are they the right tool for you? That depends on your financial profile. Previous blog posts written by my colleagues here at Fiat Wealth Management speak in greater length about them, and will be referenced and linked throughout this entry as well.

Types of Annuities

Annuities can be broadly categorized into two groups: fixed and variable annuities.

Fixed Annuities

Fixed annuities are a financial vehicle that guarantee your principal (typically funded in a lump sum) against loss, and provide interest on said principal. These can be used for accumulation purposes (safe growth) or for distribution purposes (income). Most (not all) fixed annuities tend to have fees associated with that principal protection, and/or the interest they generate, or the riders that are applied (ex. Guaranteed lifetime income).

Understanding these fees is an important part of the decision to buy an annuity, and the financial professional selling you the annuity should explain and disclose all fees associated with the contract. Remember: paying a fee is not a bad thing but you must understand what you are paying for and determine how and if that fits into your plan with your advisor.

In addition to the guaranteed interest rate, fixed annuities may offer additional “bells and whistles” such as lifetime income, increasing income, interest bonuses, etc.

At Fiat Wealth Management, fixed annuities are most often used by families that desire to offset the risk of outliving their assets or reduce the effect of market volatility on their retirement lifestyle. If we choose an annuity as a part of the overall plan, we are very careful to find the right one, funded in the right amount, to meet the family’s specific and particular goals, without neglecting the rest of the financial picture.

Variable Annuities

Variable annuities are a financial vehicle that remains “at-risk,” invested in a choice of funds or indexes from a select menu offered by the insurance carrier for that particular contract. This means that, for better or for worse, the contract value can increase or decrease, depending on your investment selection. Variable annuities can be used, like fixed annuities, for accumulation or distribution.

Typically, variable annuities charge fees for the investments they are in as well as fees for additional “bells and whistles” such as lifetime income, death benefits, etc. Like fixed annuities, it is important to understand what you are paying for, and we encourage you to discuss and weight all options with your advisor prior to signing paperwork.


Annuities are a tool. The right tool must be selected for the right job. One can pound a nail in with a screwdriver, but a hammer would be better suited for the job. Furthermore, does the nail even need to be hammered in this spot?

At Fiat Wealth Management, we work diligently to develop a full financial profile for the families we serve. We then design a comprehensive plan that addresses their needs, wants and concerns. Once the totality of the system is designed, the determination of whether to add an annuity (or how to use a preexisting annuity) is discussed.

Please schedule time with me or any of my colleagues if you have any questions about annuities or if you are wondering if they fit into your financial plan.

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Fiat Wealth Management, LLC is registered as an investment advisor with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the advisor has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.

Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.

Hyperlinks on this website are provided as a convenience. We cannot be held responsible for information, services or products found on websites linked to ours.

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