Understanding Fixed Annuities
A fixed annuity is a contract between you and an insurance company that provides a guaranteed interest rate for a set number of years that protects your retirement savings from market fluctuations. You make a purchase with the issuing company and your annuity will grow, tax deferred, by the interest rate stated on your contract.
Fixed annuities offer various different interest rates, allowing your contract to grow over a 1, 3, 5, 7 or 10 years. A fixed annuity also includes options for guaranteed lifetime income.
The Basics of Fixed Annuities
Fixed annuities, in essence, are very similar to CD type investments that are sold by insurance companies. With most fixed annuities, you can expect some of the following features:
- Guaranteed rates of interest
- Can be deferred or immediate
Advantages of Fixed Annuities
With fixed annuities, you receive a guaranteed interest rate, which is usually why they are appealing to investors with a low risk tolerance. In addition, fixed annuities also have low investment minimums, ranging anywhere from $1,000 on up. One of the biggest benefits to this particular type of annuity is the potential for grow tax deferred.
Disadvantages of Fixed Annuities
With fixed annuities, your rates can be fixed for a brief period and can potentially drop after the first year. Should the new rate be too low for you, you may face heavy surrender fees that will impact your overall returns. With fixed annuities, you have the option to receive lifetime payments, unfortunately in most cases these payments will not keep pace with inflation.
Are Fixed Annuities Right for Me?
A fixed annuity is a great option if your looking for an income during retirement to cover fixed living expenses. However, while a fixed annuity will help you protect your retirement savings without market risk, it does not offer the potential for substantial growth that you would find with a fixed index annuity.
Want to Learn More About Annuities?
Schedule your free, no obligation consultation today and let us explain the various types of annuities available and what will work best for your specific situation.