What is a Fixed Annuity and How Can it Benefit my Retirement?
Many Americans wonder how to best invest their money for the long-term. Annuity insurance is one option consider, an arrangement in which an investor makes an upfront, or ongoing payments, and in return receives return payments of principal and interest for their retirement. Return payments can be for a period of time or for the life of the investor. There are many benefits of annuity insurance. Most notably that investments in annuities are tax deferred until withdrawals are made. Annuity insurance also doesn’t have maximum contributions, like other tax-deferred investments such as your 401k. The most popular annuity is the fixed annuity. Not coincidentally it is also the safest providing guaranteed return of principle as well as a reasonable interest rate. Investors receive payments at regular intervals during their retirement. A fixed annuity provides retirees against the risk of receiving a negative gain on their retirement nest-egg as well as the stability of set payment intervals. A fixed annuity covers investors from market fluctuations and often provides more than a moderate return when considering the tax benefits, combined with the interest rate received compared to other low risk investments such as Government Bonds or CD’s. Fixed annuities can be paid out in one of two ways. An immediate annuity provides payments to the holder as soon as the annuity insurance is purchased. To qualify for this, the investor must be at least 59 and a half, the minimum age to receive payments without penalty. If you are over 60, you can still choose the other option if you wish; a deferred annuity. A deferred annuity is the only option available for investors below 59.5 years of age. This annuity gathers interest on money invested at the pre-agreed fixed amount for a number of years until the owner is at 59.5 years old. No tax will be paid until withdrawals are made. By now, you may be thinking a fixed annuity would be a smart investment, and they are the right choice for many people. However, you should always consider all the facts. They are not right for everyone. Before considering a fixed annuity always consider your financial needs and requirements. A drawback of annuities is that they penalize investors for early withdrawals. If you ever need to withdraw your money from an annuity, you are able to do so, but if done before the age of 59.5, you will be penalized by the IRS and likely the insurance company as well. This article is an overview of a fixed annuity, but it is nowhere near a complete assessment. Always consider the financial implications, and your personal situation before making a decision on any investment or insurance product. John C. Ryan writes content about annuity insurance, attempting to provide retirees with the information they require to examine their fixed, variable, and index annuity options. |