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Fixed Annuities

Fixed Annuities

Over the past several decades, as the responsibility for providing retirement income has shifted from employers and government-sponsored Social Security benefits to individuals, many people have turned to fixed annuities because they provide both protection from market volatility and a guaranteed income stream as a portion of their retirement income.

What is a Fixed Annuity?

A fixed annuity is a contract you purchase from an insurance company. For the payments (premiums) you give to the insurance company, you receive a guarantee in return, either in the form of a guaranteed interest rate or guaranteed income in retirement. When you’re ready to receive income, a fixed annuity offers a variety of guaranteed payout options.

Benefits of Annuities?

Annuities allow you to put away money for retirement without paying taxes on interest accrued. This is one of the main advantages of using an annuity as opposed to other types of investments. But unlike other tax-deferred options like IRAs or 401(k)s, annuities have no annual contribution limit. Annuities are a particularly good option for those who are approaching retirement age and want to create something that will behave more or less like a pension fund.

Traditional Fixed Annuity vs. Fixed Index Annuity 

Traditional fixed annuities are guaranteed fixed annuities, which accumulate money based on a fixed interest rate set at the beginning of your contract. While traditional fixed annuities may not always guarantee the sizable returns that fixed index contracts sometimes bring, they are a solid conservative option for those who want to avoid the risks that come with the ups and downs of the market.

A fixed index annuity is an insurance contract that can provide you with income in retirement. The payments are based on the performance of a stock market index (such as the S&P 500). You’re protected against most losses but your total returns may be limited. This type of annuity has the potential to provide higher returns than you might get with the traditional option, but they are also more vulnerable to fluctuations in the market. However, initial investments are generally secure with this type of contract, which also comes with a guaranteed minimum rate.

Why Invest in Traditional Fixed Annuities?

Traditional fixed annuities are a smart option for the more conservative investor. Slow and steady gains characterize this type of annuity, with the added security of knowing exactly the numbers you’ll be working with. Contract terms are simpler, and your rate of return is guaranteed. Many contracts also have the added advantage of including death benefit riders, which allow you to pass funds onto a beneficiary for disbursement. 

Why Invest in Fixed Index Annuities?

Fixed index annuities, while lacking the stability of traditional contracts, can be a good option for retirement income, since they are able to flex and bend with the market, possibly protecting against the unpredictability of inflation. And while these options may be inherently more volatile, they also have the potential for greater returns without being prohibitively risky.

Why Invest in Fixed Index Annuities?

Fixed index annuities, while lacking the stability of traditional contracts, can be a good option for retirement income, since they are able to flex and bend with the market, possibly protecting against the unpredictability of inflation. And while these options may be inherently more volatile, they also have the potential for greater returns without being prohibitively risky. 

Fixed Annuity Rates 

The fixed annuity rate is the rate of return for a specific period.  A fixed annuity pays a guaranteed interest rate for 3 to 10 years, for a specific period.  Fixed annuities and CDs are similar because you’re guaranteed to receive your principal investment back after a specific time with interest. Both are considered low-risk investments.

What To Consider:

  • Insurer
  • Rating
  • Interest Rate
  • Investment Term
  • Withdrawal Allowance
  • Charges for Excess Withdrawals
  • Market-Value Adjustment (MVA)

Does all this sound confusing? Don’t worry! We will help you customize a plan that works best for you. Contact us today to discuss your options!

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