A Guide to Fixed Annuities
Interested in annuities but don’t know where to start? This article will pass along some important information for you to think about so you can make an informed decision regarding the best fixed annuities for your profile.
An annuity is a stream of payments. An annuity buyer is referred to as an annuitant and it is a contract (investment) between the investor (annuitant) and a financial institution or an insurance company (they are products of insurance). This institution is one who agrees to pay the annuitant a fixed amount of money at specific intervals (or events) for a specified length of time. These details are based upon the amount invested for the annuity. Annuities are commonly used for the stabilization of investment income and are usually utilized by people around retirement age.
There are several types of annuities, and these include different upgrades and options added onto a simple annuity for additional fees. Here we will explore two types of fixed annuities; deferred fixed annuities, and immediate fixed annuities. The immediate annuity pays the annuitant a lump sum, one payment interval after the purchase date, thus eliminating any long accumulation phase. The deferred annuity is purchased over a longer interval frame (usually longer than a decade), perhaps while the person is still in the work force. If the annuitant does not live long enough to be paid their full amount, the company who sold the annuity keeps the left over amount. Prices are negotiable, just as is the amount of money to be paid out. It is important to shop around to make sure you are satisfied with your purchase and are getting the best deal possible.
Fixed annuity advantages and disadvantages:
Advantages
A guaranteed dollar amount is remitted to the annuitant during their retirement
Some have a minimum interest rate paid to the annuitant- Fixed Annuities Rates
Can pay income for the span of a person’s life
Tax savings are excellent, as well as tax deferral
A way to save for retirement
Disadvantages
Surrender penalties, which are 10%, are very high for those who change their mind
Invested money is not liquid
Loses purchasing power over time as a result of inflation, although proper planning can relieve this
Tricky to manage (insurance costs can dwindle the original investment)
Contracts are complicated
Most policies that are sold to individual people must be paid with after-tax monies (called non-qualified)
Several fees including: administration fees, insurer fees, sales fees, and surrender charges
How do you decide whether or not a fixed annuity is for you?
1. What type of annuity would I purchase?
2. Is this a portion of an overall plan, or is it the plan itself?
3. What fees does the annuity charge?
4. Taxes: how do the annuity taxes work?
5. When I die, what happens to the money?
The annuity should be considered by people who are concerned about living longer than their income would be able to support them; however times in which fixed interest rates are very low are not optimal times to purchase.
Related posts:
- A Guide to Annuity Rates
- A Retirement Annuity Guide
- Tips on Buying Home Contents Insurance
- A Guide to Buildings and Contents Insurance
- A Guide to Commercial Insurance
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