Annuity Insurance: An Introduction to the Fixed Annuity
Annuity insurance is an investment vehicle where an investor makes a lump sum payment, or numerous payments, and 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.
Annuity insurance can provide many benefits including unlimited contributions to a tax-deferred income stream. Annuity payments give retirees structure, and a beneficial way to plan their spending, and ensure money for life.
The most popular annuity is the fixed annuity. Not coincidentally it is also the safest providing guaranteed return of principle as well as a reasonable interest rate. Investors receive payments at regular intervals during their retirement.
A fixed annuity is a widely preferred option among investors due to its protection of principal and security for retirement. There is a guaranteed return of both earnings and 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.
Fixed annuities can further be segmented by their payment schedule. An immediate fixed annuity provides immediate payments to the holder, as soon as the investment was made. In the US, annuity insurance investors cannot receive payments until the age of 59 and a half without penalty. Therefore immediate annuities are often used by investors already in retirement.
For annuity investors younger than 59 and 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, and no tax is paid until withdrawals are made.
As with all insurance and investment products, there are various drawbacks. When considering a fixed annuity, or really any investment, always ensure you're getting both sides of the story. One concern with annuities is that they are not a very liquid investment. If you invest in an annuity and then require the money be returned before maturity, you face an IRS tax penalty, as well as possible penalties from your insurance company. Always consider your financial position and possible short-term needs, before investing in a long-term fixed annuity.
There are many benefits to having a fixed annuity as part of your portfolio, but there are downsides as well. Always consult a financial professional before making any long-term financial investment.
Annuity insurance can provide many benefits including unlimited contributions to a tax-deferred income stream. Annuity payments give retirees structure, and a beneficial way to plan their spending, and ensure money for life.
The most popular annuity is the fixed annuity. Not coincidentally it is also the safest providing guaranteed return of principle as well as a reasonable interest rate. Investors receive payments at regular intervals during their retirement.
A fixed annuity is a widely preferred option among investors due to its protection of principal and security for retirement. There is a guaranteed return of both earnings and 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.
Fixed annuities can further be segmented by their payment schedule. An immediate fixed annuity provides immediate payments to the holder, as soon as the investment was made. In the US, annuity insurance investors cannot receive payments until the age of 59 and a half without penalty. Therefore immediate annuities are often used by investors already in retirement.
For annuity investors younger than 59 and 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, and no tax is paid until withdrawals are made.
As with all insurance and investment products, there are various drawbacks. When considering a fixed annuity, or really any investment, always ensure you're getting both sides of the story. One concern with annuities is that they are not a very liquid investment. If you invest in an annuity and then require the money be returned before maturity, you face an IRS tax penalty, as well as possible penalties from your insurance company. Always consider your financial position and possible short-term needs, before investing in a long-term fixed annuity.
There are many benefits to having a fixed annuity as part of your portfolio, but there are downsides as well. Always consult a financial professional before making any long-term financial investment.
About the Author:
John C. Ryan writes articles about annuity insurance, providing investors with the knowledge they require to assess their fixed, variable, and index annuity options.