What is a Fixed Annuity?

A fixed annuity helps stabilize the income from investments and is generally used by people who are preparing for retirement. A fixed annuity is an insurance contract that offers the individual. The income from a fixed annuity comes from investments made by the insurance company with money that you pay to the insurer. There are several options for the end of an annuity that should be discussed with your insurance company and financial planner before entering into a fixed annuity contract. There are advantages and disadvantages to a fixed annuity but many people who are planning for retirements see the advantages outweigh the disadvantages.

There are two main types of fixed annuity that you could choose for your retirement. A Life annuity pays a fixed amount each payment period until the death of the retiree. A Term Certain annuity pays a fixed amount each payment period until the expiration of the contract. Many retirees choose the life annuity because there is a good chance that a term certain annuity will end before the death of the retiree, and also because a life annuity can be set to continue payments to a spouse of beneficiary for a time after the death of the initial purchaser. These are individual choices that each potential annuity purchaser will need to consider to make the best choice for them and their family for when they retire.

One benefit of an annuity is that the income from your investment is tax-free until you withdraw, so your periodic payments are taxed as income and not a capital gain. Another is that while you are a member of the workforce you can pay in over the years to set yourself up with a comfortable income from the annuity upon retirement. However if you withdraw the money early there are penalties and fees, and you need to look carefully at the insurance coverage on your investment as well as the earning potential.

Essentially a fixed annuity is a wonderful choice to provide you and your family with steady fixed income throughout your retirement. The benefits of tax deferral and the growth of the original investment outweigh the disadvantages of early withdrawal penalties and many decisions and choices that can seem overwhelming upon the initial contract. Be sure to discuss the different types, levels, and floors of annuities with your insurance agent and financial planner, and as well, carefully reading the prospectus offering for your annuity purchase. Do not ignore the small print in this matter as it could affect whether you can medical care and food in your retirement. Take the steps required to plan your retirement to ensure that you can live comfortably in your golden years.

You should review the complete plan, considering such factors as the guaranteed interest rate, the surrender charges, and the administrative and maintenance fees. A high interest rate during the first year is not always the better choice. This is especially true if the interest rates drop to a low minimum rate the next year with high surrender charges and additional fees.