Free Annuity Guides

A fixed annuity is a simple and popular solution for retirees looking for a reliable source of income with a unique advantage – income for life.

A fixed annuity is a contract between you and an insurance company where the insurer pays you cash immediately and not at some point in the future as with a variable annuity. Insurance companies assume all risks on your investment and they guarantee payment at your stated interest rate. Additionally, a fixed annuity is not tied to the stock market.

Fixed Annuity: What are your options?

There are two options with a fixed annuity: Immediate or deferred annuity. Each option has its benefits and largely depends on your short and long-term financial goals.

• Immediate Annuity: With an immediate annuity, you make a one-time or lump sum payment and in return, you begin receiving cash annuity payments monthly, quarterly or annually, depending on what you choose.

• Deferred Annuity: With a deferred annuity, you build up money in your account on a tax-deferred basis and begin withdrawing the money at a point in the future. It is commonly used for people to build up their retirement nest, knowing that they will receive a guaranteed stream of income in the future.

Advantages

It is the first choice of the risk-averse investor, who prefers to avoid the fluctuations and risks of the Stock Market. It is because a fixed annuity offers a fixed rate of return on investment, which the investor is sure to receive. Along with that, the investor will be satisfied that there will be no tax payments until a withdrawal is made. Also, it is easy to invest in a fixed annuity, as the minimum required investment is within the bracket of $1,000 to $10,000.

Disadvantages

One of the greatest disadvantages of a fixed annuity is the fact that it pays out on a fixed rate of return, and does not adjust for factors like inflation. Since the payments do not rise to compensate the declining value of money over time, which results in a declining power of purchase, the investor is unable to maximize the return on investment. This problem can get more severe for investors who are planning to receive considerably long term payments from a fixed annuity plan.

It is also discouraging for investors who are on a look out to maximize the return on their investment. The rates are not fixed for a very long period of time, and may change from year to year. Therefore, although the payout of a fixed annuity is on a fixed and guaranteed interest rate, the investor could actually end up with decreased return on his or her investment.

Is it right for you?

If you are not too keen about maximizing the profit on your investment, or if the time value of money problem with its returns don’t bother you, than you will probably be comfortable with a fixed annuity. Moreover, fixed annuity is appropriate for people who want a risk free and stable income, and who want to live comfortably during retirement.