5-Year Fixed Annuity Rates
If you’re close to retirement, 5-year fixed annuities can help you add some cushion to your nest egg. You’ll be able to reduce risk and enjoy a guaranteed rate of return. Plus, depending on the provider, you may be able to add on riders and customize your policy.
- Written by Anna Baluch
- Edited By
Michael Santiago, CRPC™
Michael Santiago, CRPC™
Senior Financial Editor
Michael Santiago, a senior financial editor, joined RetireGuide in 2023. With over 10 years of professional writing and editing experience, he brings a wealth of expertise in creating content for diverse industries, including travel and healthcare. Having traveled to more than 40 countries across five continents and lived in Europe and Asia for several years, Michael's global perspective enriches his work. He combines his strong writing skills, editorial judgment and passion for crafting accurate and engrossing content to enhance the user experience on RetireGuide.
Read More- Published: December 8, 2024
- Updated: December 12, 2024
- 6 min read time
- This page features 4 Cited Research Articles
- A 5-year fixed annuity offers a predictable rate of return on your investment.
- While you’ll enjoy guaranteed returns, a 5-year fixed annuity can be expensive and may not keep up with inflation and the rising costs of living.
- Before you commit to a 5-year annuity, shop around and explore your options so you can zero in on the ideal product for your unique situation.
What Is a 5-Year Fixed Annuity?
A 5-year fixed annuity is a contract between you and an insurance company. It provides a predetermined rate of return through a set interest rate, which is usually based on the provider and market conditions. Fixed annuities are considered less risky than variable annuities, which feature interest rates that fluctuate based on the market. With a fixed annuity, you can supplement your retirement income in a predictable way.
How Does a 5-Year Fixed Annuity Work?
Once you move forward with a 5-year fixed annuity, you’ll pay a premium in the form of a lump sum or regular installments. Since you’ll receive a fixed interest rate, you’ll know exactly how much your annuity will grow and how much income you’ll receive. You may opt for a multi-year guarantee annuity, or MYGA, which guarantees a higher rate for the entire term of the contract.
As soon as the term is up, you may choose a new term, surrender the annuity or transfer the MYGA to a fixed account and allow it to earn a guaranteed minimum rate of return. As a comparison, a 5-year annuity is tax-deferred, meaning you pay taxes upon withdrawal, unlike a 5-year CD, which is more suited for short-term savings needs.
Learn More About Your Annuity Options
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Current 5-Year Fixed Annuity Rates
The Federal Reserve plays a fundamental role in federal funds rates, which have an effect on the rates financial institutions, such as banks and insurance companies can provide to their customers. When the Fed increases rates, insurers typically offer more competitive rates to annuity holders. On the other hand, when the Fed reduces rates, annuity holders can expect lower interest rates.
| Annuity Provider/Insurer | Product Name | Current Rate for a 5-Year Fixed Annuity |
|---|---|---|
| Charles Schwab | Midland National LiveWell® Guarantee Max¹ | 4.85% |
| Nassau | Nassau MYAnnuity | 5.00% |
| Gainbridge | SteadyPace™ | 5.50% |
| The Standard | Multi-Choice Annuity | 4.65% |
Advantages and Risks of a 5-Year Fixed Annuity
As with any financial tool, 5-year fixed annuities come with benefits and drawbacks you should consider.
- Predictable returns: With a 5-year fixed annuity, your returns are guaranteed. You won’t have to worry about market volatility.
- Tax-deferred growth: You’ll owe taxes on the funds you withdraw in retirement. This is a huge plus if you think you’ll be in a lower tax bracket.
- May be able to earn higher returns elsewhere: Even though a 5-year fixed annuity is a safe, low-risk investment, you’ll likely receive a better payout with a 401(k) or IRA. Depending on your situation and how far you are from retirement, it might make sense to explore other retirement solutions.
- Fees: Most annuity companies impose surrender charges if you withdraw your funds early. They may also charge other fees like commissions, investment management fees and expense risk fees.
- Inflation concerns: In most cases, a 5-year fixed annuity won’t keep up with inflation due to its low rate of return. The fixed payments you’ll receive may lose their value as the cost of living increases over time.
- Potentially complicated contracts: Compared to other types of investment accounts, fixed annuities can be complicated. While they may seem simple and risk-free at first glance, some contracts can be a challenge to understand.
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How To Compare and Choose the Best 5-Year Fixed Annuity
- Interest rates
- Ideally, you’d choose a 5-year fixed annuity with a competitive interest rate. A higher rate will result in higher returns.
- Surrender charges
- Most annuity companies will penalize you with a surrender charge if you pull funds from your account before the term is up. If you think there’s a chance you’ll need the money before the 5-year term is over, look for an annuity with annual free withdrawals.
- MVAs
- Some providers add MVAs or market value adjustments that will kick in if you surrender the contract early. Pay attention to this as it can be a benefit or drawback, depending on how interest rates are going.
- Financial strength ratings
- Financial strength is important as you explore different options for 5-year fixed annuities. Prioritize products offered by companies with good to excellent ratings from Moody’s and AM Best.
Is a 5-Year Fixed Annuity Right for You?
If retirement is in your near future, a 5-year fixed annuity may be beneficial. You’ll be able to boost your final nest egg with minimal risk. An annuity is a particularly good option if you don’t have any concerns about liquidity and anticipate being in a lower tax bracket once you retire. You’ll be able to calculate your returns in advance so there won’t be any unpleasant financial surprises that are more likely with other, riskier investment options.
A 5-year fixed annuity can be a solid choice for those nearing retirement who want a predictable, low-risk investment option. While it offers guaranteed returns and tax-deferred growth, it may not keep up with inflation and can involve fees or penalties for early withdrawal. Be sure to compare rates, consider surrender charges and choose a reputable provider to ensure you find the best annuity for your financial goals.
Editor Norah Layne contributed to this article.
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- Over a decade of professional writing experience in finance
- MBA with a focus on marketing from Roosevelt University
4 Cited Research Articles
- Charles Schwab. (2024, November 5). Guaranteed Fixed Deferred Annuity Rates Offered Through Schwab. Retrieved from https://www.schwab.com/annuities/fixed-annuities/rates
- Nassau. (2024, May). Nassau MYAnnuity® 5X, 7X. Retrieved from https://nfg.com/nassau-my-annuity-a-myga.html
- Gainbridge. (2024). SteadyPace™ — Tax-Deferred Annuity. Retrieved from https://gainbridge.io/steadypace
- The Standard. (2024). Multi-Choice Annuity. Retrieved from https://www.standard.com/brokers-advisors/annuities/multichoiceannuity
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