What is a Fixed Annuity and How Can it Benefit my Retirement

Annuity insurance is an investment vehicle where an investor makes a lump sum payment or numerous payments & in return receives regular payments at set intervals for their retirement. The insurance company provides annuity investors with a certain sum either for a specified duration or for the entire lifetime of the person.

There are many benefits of annuity insurance. Most notably that investments in annuities are tax deferred until withdrawals are made. Annuity insurance also doesn’t have maximum contributions like other tax-deferred investments such as your 401k.

There are three main types of annuities fixed variable & indexed. Here we will focus on the safest & most common type; fixed annuities. A fixed annuity ensures a standard rate of interest on your investment for a stipulated period irrespective of fluctuations in the economic status of the marketplace.

A fixed annuity is widely preferred option among investors due to its protection of principal & security for retirement. There is guaranteed return of both earnings & the principal. As well fixed annuities can provide a higher rate of return than other common “safe investments” such as Bank CD’s or Government Bonds.

There are two kinds of fixed annuities. An Immediate fixed annuity which implies that the investor starts receiving payments immediately or within a very short period after the principal is deposited. This is commonplace for retirees as US annuity investors are not able to receive payments without tax penalty until the age of 59.5 years old.

For annuity investors younger than 59 & a half only one payment schedule option exists a deferred annuity. A deferred annuity has a period until maturity when payments occur . During this time a fixed annuity grows at the pre-agreed fixed rate of interest & no tax is paid until withdrawals are made.

By now you may be thinking a fixed annuity would be a smart investment & they are the right choice for many people. However you should always consider all the facts. They are not right for everyone. Before considering a fixed annuity always consider your financial needs & requirements. A drawback of annuities is that they penalize investors for early withdrawals. If you ever need to withdraw your money from an annuity you are able to do so but if done before the age of 59.5 you will be penalized by the IRS & likely the insurance company as well.

This article is an overview of a fixed annuity but it nowhere near a complete assessment. Always consider the financial implications & your personal situation before making a decision on any investment or insurance product.

John C. Ryan writes content regarding annuity insurance attempting to provide retirees with the information they require to assess their fixed variable & index annuity options.