Fixed Income Annuities Investment

Fixed income annuities can be complicate and difficult to understand. When considering the purchase of fixed income annuities, it is important to have a good understanding of how these plans are structured and how they work.

A fixed income annuity receives a fixed - guaranteed - interest rate for a set period, usually one, three, or five years. When this initial rate period ends, a new fixed interest rate is established for the next period. The guaranteed nature of the interest rate and the investment principal means that fixed income annuities are similar to bank Certificates of Deposit. Annuities are not back by the Federal Deposit Insurance Corporation (FDIC), however. The security of a fixed income annuity plan depends on the financial condition of the insurer that sells the product.

How Fixed Income Annuities Work:

Fixed income annuities are purchased with a one-time payment. You can choose the type of payment best for you. Payouts from the annuity can start right away or put off to a later date, but they must begin with a year of the plan purchase. Income received from a fixed income annuity are based on several factors, including the amount you paid when you bought the plan, your age, gender, and the costs and interest rate applying at the time of plan purchase. Once you buy a fixed income annuity, you cannot access your principal.

Fixed Income Annuities: Pros and Cons:

An advantage of a fixed income annuity is that you receive a specified, known amount of money paid to you every month. This provides a stable stream of income during retirement, without worrying about investment performance and market volatility. However, one of the disadvantages of fixed income annuities is that they do not keep up with the rate of inflation. Some fixed income annuity products offer an increasing payment every year to mitigate the effects of inflation, but this is associated with a lower initial monthly payout.

Deferred Fixed Annuities:

With a deferred fixed annuity, your investment increases at a stated interest rate until you withdraw funds upon retirement. The rate is usually adjusted over time to reflect market conditions. Money can be withdrawn as a lump sum or a series of payments, with no taxes imposed until withdrawal. These plans are appropriate for individuals who want to avoid as much investment risk as they can. The interest rate on deferred fixed income annuities are often higher than that offered by long-term bank CDs. These annuities may impose a large fee if money is withdrawn before a specified period of time passes. These charges are usually built in to the fixed interest rate you receive.

For more information from Steven on how to invest in annuities, their pros & cons, and common investment mistakes, visit his Annuities Investment Guide. To learn more about securing your retirement with fixed annuities, visit the Fixed Annuities Guide.