Risks & Benefits of Fixed Annuities

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Risks of Fixed Annuities

Fixed annuities are generally considered low-risk investments but not completely risk-free. The primary risk associated with fixed annuities, beyond the financial strength of the insurance company, includes:

  1. Interest Rate Risk: Fixed annuities pay a guaranteed interest rate. If interest rates rise significantly after you purchase a fixed annuity, you could be locked into a lower rate, missing out on higher-earning opportunities.
  2. Inflation Risk: The fixed payments from an annuity might not keep pace with inflation, potentially decreasing your purchasing power over time.
  3. Liquidity Risk: Fixed annuities often have surrender charges and withdrawal limits. Accessing funds beyond the set limits can be expensive or restricted.
  4. Tax Implications: Withdrawals from annuities can be subject to income tax and may incur additional penalties if taken before age 59½.
Risks And Benefits Of Fixed Annuities

Comparing Risks and Benefits of Fixed Annuities

AspectRiskBenefit
Interest RateRisk of being locked into a low rateStable, predictable returns
InflationPurchasing power may declineRegular income stream
LiquidityEarly withdrawal penaltiesLong-term financial planning tool
TaxationTax on withdrawals, potential penaltiesTax-deferred growth

Conclusion

While fixed annuities offer stability and predictable income, they are not entirely risk-free. Considering factors like interest rate risk, inflation, liquidity, and tax implications is crucial. Fixed annuities can be a valuable part of a diversified investment portfolio, especially for those seeking steady income in retirement. Contact us today for a free quote.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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