FIXED ANNUITIES

Designed for long-term retirement goals, a fixed annuity operates much like a banking product you may already be familiar with:  the CD (certificate of deposit). As a contract purchased from a life insurance company, a fixed annuity provides a guaranteed, fixed rate of return for a specific period of time (typically 3-10 years). Both the principal investment and the interest rate are guaranteed and are unaffected by fluctuations in the market. In simple terms, a fixed annuity is a low risk way to earn money in a certain amount of time.

Ideally, a fixed annuity is a long-term retirement investment tool. For the purposes of portfolio diversification, a fixed annuity can be a terrific value. It’s possible to stagger the renewal dates of multiple fixed annuities (similar to the way many use CDs) and have money become liquid (that means no surrender charges or penalties for withdrawals) on a regular basis. It’s important to note that, as with many investments, early withdrawals before age 59 ½  may be subject to federal tax penalty, and all withdrawals are subject to income tax. There are also surrender charges to consider for withdrawing more than the allowed percentage each year.

A fixed annuity is an asset with death benefit options – it bypasses probate and passes to directly your designated beneficiaries as outlined in your contract. Optional riders can be added, at an additional cost, to increase the payout amount to  your beneficiaries. Whether you have minor children who aren’t ready to handle money, adult children who are a little too carefree to trust with a sum of money, or extended family, friends, or organizations you want to favor, you know your situation best. It’s comforting to have the ability to direct how and when your annuity will support the people you care about most.

Potential Benefits

  • Protection from economic climate – guaranteed interest rate, regardless of market performance
  • Tax-deferred growth – compounded earnings aren’t taxed until withdrawn or taken as income
  • Growth with minimal investment-risk exposure – a dependable interest rate grows your money better than traditional savings products
  • Flexible payout options – contract can be annuitized, payments can be made for a specified period of time, or an income stream can be created to last a lifetime
  • Minimal investment requirements – many require an initial investment of only  $1,000-$10,000
  • Beneficiary protection – bypasses lengthy probate issues, and payout can be structured according to your wishes

Potential Drawbacks

  • Limited growth potential & higher inflation risk – the tradeoff for less risk is less opportunity for growth, and the rising prices of goods and commodities over time may outpace your earnings without careful planning
  • Early withdrawal penalties & surrender fees – know the rules to avoid costly mistakes
  • Intended for long-term goals – fixed annuities are not designed to meet short-term goals

Want to Learn More about Fixed Annuities?

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