Fixed annuities are a type of investment product designed to provide a steady income in retirement. In addition, they offer several benefits for retirees, including stability, security, and growth potential. This guide will explore the characteristics of fixed annuities, how they work, and why they might be a good choice for your retirement planning.
What is a Fixed Annuity?
Investing in a fixed annuity is an agreement between you and an insurance company. You can contribute either one lump sum or multiple payments, allowing the insurer to provide you with regular payouts over your desired duration – for several years, up until the end of your life, or any other period that suits your needs.
How do Fixed Annuities Work?
Fixed annuities work by pooling the funds of many individuals and investing those funds in a variety of securities. The insurance company uses the returns from these investments to make payments to the contract holders. The insurance company guarantees the payments, and the amount of each payment is determined in advance.
Benefits of Fixed Annuities
Fixed annuities offer several benefits for retirees, including:
- Guaranteed Income: One of the most significant benefits of fixed annuities is their guaranteed income. Once you start receiving payments, you can be confident that you’ll receive a steady income for the duration of the contract.
- Potential for Growth: Fixed annuities also offer growth potential, although this growth is typically more modest than other investment products.
- Tax Deferral: The money you put into a fixed annuity grows tax-deferred, meaning you don’t have to pay taxes on the earnings until you start receiving payments.
- Death Benefits: Many fixed annuities also offer death benefits, which can help provide financial security for your beneficiaries.
Risks of Fixed Annuities
Like any investment product, fixed annuities come with some risks. Some of the risks associated with fixed annuities include the following:
- Market Risk: Fixed annuities are invested in various securities subject to market risk. If the securities in which the funds are invested perform poorly, your payments could be lower than expected.
- Interest Rate Risk: Fixed annuities are also subject to interest rate risk, which means that if interest rates fall, the value of your payments could decrease.
- Surrender Charges: If you withdraw money from your fixed annuity before the end of the contract term, you may be subject to surrender charges.
Next Steps
Fixed annuities can play an important role in retirement planning, but it’s crucial to understand the risks involved before investing. If you’re thinking about purchasing a fixed annuity, we recommend speaking with a financial advisor who can help you decide if this product is suitable for you and your unique circumstances. Our team of advisors would be happy to provide you with a quote – contact us today to get started.
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