A Fixed Annuity is designed for long term investors seeking refuge from the turmoil of the market.
A Fixed Annuity offers a guaranteed minimum rate of return, for a stated period of time. The return is guaranteed and backed by the Corporate Creditof the company issuing the contract. If a fixed annuity is of interest, we offer essential tools in The Annuity Report for picking only the best Fixed Annuity coverage and products. It is available for free to members simply by signing up.
How Do Fixed Annuities Work?
When you buy a fixed annuity contract, you give the life insurance company your money, and they invest in a large pool of low-risk assets. They guarantee that your investment amount will grow by a fixed amount, (fixed annuity rates) and contractually commit to pay you a stream of income for a specified period of time- this could be a lump sum, or over a number of years, a lifetime, or in a joint and survivor annuity, two lives.
Fixed Annuities are safe, secure investments and are generally straightforward contracts that are readable in plain English. A Variable Annuity , by contrast, shifts both the potential for higher gain AND the associated risk of LOSS onto you, the investor. Variable annuity contracts are generally more complicated, more expensive, and have more unknowns than fixed annuities.
The premium amount invested in the fixed annuity contract may be used in the future to purchase an income stream immediately (known as an Immediate Annuity ) or the premium may grow tax deferred prior to the start of the income payments. This is a Deferred Annuity, and the process of converting a pool of capital in a deferred annuity into an income stream is known as annuitization.
Fixed Annuities: Tax Deferred
Because of the laws that govern insurance companies, you benefit from tax deferred growth and compound interest. This pooled, guaranteed, tax deferred, long term approach gives the annuity owner a higher rate of return than CD’s, and the risk of loss is shifted from you to the insurance company. There are two phases of tax deferral in a fixed annuity:
- The first phase is the accumulation phase- your principal investment grows in a tax deferred, compounding structure without taxation.
- The second, optional phase is the payout or annuitization phase, whereby the accumulated account balance may be paid in a lump sum or converted into a monthly fixed income and paid on a guaranteed basis over a lifetime or set number of payments. For many fixed annuities, this is an optional phase and you should preserve your options in any long term investment.
Fixed Annuity Costs:
Fixed Annuities also have relatively low costs compared to variable annuities. Fixed annuities are relatively high yield low risk investments. Here’s the Tradeoff- While a fixed Annuity provides a balance of return and appreciation that is superior, over the long term, when you compare Annuity Vs. CD’s or other cash equivalents, you do give up some liquidity in exchange.
In addition to our pros and cons of fixed annuities page, here are some of the tax-deferred benefits of a fixed annuity:
- A Tax-deferred fixed annuity lets you defer all tax on earnings and principal into the future, providing exceptional compounded growth.
- A tax deferred fixed annuity is an efficient retirement savings vehicle, and is a safe investment that protects both yield, and principal.
Fixed Annuity Options and Riders can specify a wide array of living benefits and death benefits. Please be sure to read each section to better understand, or simply contact us to find the right fixed annuity for you.
Many people own fixed annuities that they no longer want. You can sell annuity payments and find a structured settlement buyer fro many resources on-line. Also, some fixed annuity contracts may have yields, exclusions, or other clauses that are no longer wanted, or are not competitive. The balance of an annuity account, including principal and interest and deferred tax, may be exchanged into a new annuity without tax, thru and IRS section 1035 tax free exchange. Please Contact Us for more information on this process.