Total fixed annuity sales were $105.1 billion in 2009, just 2 percent less than the record high set in 2008. Thus, investors continue to pour billions of dollars into fixed annuities.
A fixed annuity acts like a bank CD. You get a certain return for a set time period, perhaps three or five years. Then you can renew for another time period.
However, bank CDs generate current income tax. That’s not the case with fixed annuities; income taxes are deferred until you withdraw money. You’ll also owe a 10 percent penalty tax on withdrawals before age 59 1/2.
Therefore, fixed annuities may be most popular with people in high tax brackets. If tax rates on high income taxpayers increase in 2011, as expected, fixed annuities will become even more attractive. Similarly, if the Federal Reserve starts to raise interest rates in late 2010, as many observers predict, fixed annuities will offer higher yields, enhancing their appeal.
