During the accumulation period of a fixed annuity, your money earns interest at rates set by the insurance company or in a way spelled out in the fixed annuity contract. The company guarantees that it will pay no less than a minimum rate of interest.
The current fixed rate is the rate the company decides to credit to your contract at a particular time. The company will guarantee it will not change for some time period.
The initialfixed annuity rate is an interest rate the insurance company may credit for a set period of time after you first buy your fixed annuity. The initial rate in some contracts may be higher than it will be later. This is often called a bonus rate.
The renewal rate is the fixed rate credited by the annuity company after the end of the set time period. Three year, four, five, seven and ten years of fixed annuity rates are common choices. The contract tells how the company will set the fixed renewal rate, which may be tied to an external reference or index.
The experts we spoke with recommended that retirees enhance their guaranteed income by purchasing an annuity with some limited portion of their savings, yet few workers leaving employment with DC pensions and retiring (6.1 percent) converted their funds or a portion of the money to an annuity. (See fig. 7.) An estimated 38.8 percent that reported leaving employment with a DC pension and retiring during the 2000 to 2006 period left funds in the account, and 30.3 percent rolled them over to an IRA. Fewer chose to take a withdrawal (15.8 percent). This analysis, however, only reveals the decisions that retirees made immediately or soon after leaving employment. In some cases some of the retirees may have purchased annuities at a later time.