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What are Fixed Annuities?
Fixed annuities are essentially CD-like investments issued by insurance companies.
Similar to a CD, they pay guaranteed rates of interest, usually higher than bank CDs.
Fixed annuities can be either deferred or immediate. The deferred variety accumulate regular
rates of interest and the immediate kind make fixed payments – determined by your
age and size of your annuity – during your retirement.
How does an annuity work- convenience and predictability of a set payout makes
a fixed annuity a popular option for retiree who want a known income
stream to supplement their other retirement income.
What Are the Advantages of Fixed Annuities?
Fixed annuities pay guaranteed rates of interest, this makes them appealing to investors
who may be wary of the stock market’s ups and downs. What also makes them appealing are their
low investment minimums – usually $1,000 to $5,000 – and the fact that the interest
they pay escapes taxation until they utilize the money.
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What Are the DisAdvantages of how does an annuity work?
Their rates can also be fixed for a limited period, and then drop say, after the first year
or several years after that! Unfortunately
if you don’t like the new rates and want to withdraw your money early, surrender
charges could kick in and cut into your returns.
Plus, if you decide to opt for fixed lifetime payments, some types of annuity
payments will not rise to keep pace with inflation. As a result, the value
of the money you receive will decline over time as inflation erodes
the purchasing power of each dollar. So for example,
if you retire young and plan to keep collecting annuity payments for a longer period of
time, the purchasing power of your money could be a big concern. It all depends on the
type of fixed annuity you take out. Newer types of annuities have solved this
problem by offering inflation riders built into the annuity policy as
Learn how does an annuity work, fixed annuities, immediate annuities, variable annuities
So Are Fixed Annuities Right For Me?
Well that is the real question. Everyone is different and each must evaluate their
own individual situation. Fixed Annuities may solve your problems if- you are
looking for guaranteed rates of return, you like the idea of tax deferral in your
investments, and you like the idea of having an income stream to live on now
or when you retire. If these ideas appeal to you then by all means investigate
annuities further with your investment advisor or insurance agent today! Always
remember that annuities may have longer surrender periods than you may like
and typically will not have as high of a return as stocks, mutual funds, and other
like investments. Just some things to keep in mind!
Learn how does an annuity work, immediate annuities, variable annuites
So hopefully this answers your question how does an annuity work?
immediate annuities, variable annuities, how does an annuity work