What is a Fixed Annuity?
A fixed annuity is a contract with an insurance company that grows by earning an interest rate that includes a guaranteed minimum over the term of the annuity. In much the same way that a CD or a bond works, a fixed annuity has a set interest rate that is paid on the principal placed in the annuity. Fixed annuities are a good option for someone looking for the security of a guaranteed, fixed return on investment.
What are the features of a Fixed Annuity?
Fixed annuities have some unique characteristics that make them a very flexible choice under certain circumstances. A fixed annuity can be immediate or deferred. If deferred, the interest builds up tax-deferred until you take a withdrawal. If the annuity is immediate, the lump sum of money can be exchanged for a guaranteed income stream for life. Fixed annuities are also creditor protected, meaning that creditors can’t take it away from you in case of bankruptcy. Often, fixed annuities offer better interest rates than CD’s, while offering the added benefits mentioned above.
When are Fixed Annuities not appropriate?
Fixed annuities have a surrender period, meaning a period of time that the funds can’t be taken out of the annuity without a penalty. Many fixed annuities do allow a certain percentage to be taken out on a periodic basis without penalty. When the payments are annuitized for life, the principal is surrendered for guaranteed fixed payments. Fixed annuities may not be the best choice for folks that could unexpectedly need the principal, or are able to endure market fluctuations.
Is a Fixed Annuity right for me?
Fixed annuities can be a smart income planning solution that provides secure lifetime income and tax deferral for people looking to create an income stream in retirement. While fixed annuities aren’t for everyone, they can provide great benefits to the right investors. If you like stable investments and a fixed rate of return, consider fixed annuities.
Call now to discuss with a Puritan Life Advisor* if fixed annuities are right for you.