Is a Fixed Annuity a Smart Retirement Opportunity?

Posted in Annuities

If you’re in the market for an annuity to provide retirement income, but you’re not quite sure if a fixed annuity is the right choice, you’re not alone. Understanding annuities can be complicated—and the wrong choice can cost you money.

The good news is, the right annuity can be a smart way to generate a monthly stream of income for a certain period, or for life. Here’s a little about the fixed annuity to help you make sense of your investment options. 

What Is a Fixed Annuity? 

A fixed annuity is a type of annuity contract you buy from an insurance company that can help you stabilize income from your investments. People choose the fixed annuity for a variety of reasons, but mostly because they offer a guaranteed or “fixed” rate of return without any risk to your principal.

Earnings grow tax deferred for as long as you continue to build your investment, and can supplement income from Social Security and a pension. For those in a high tax bracket, this can be significant. However, while your earnings grow tax-free, when you withdraw or start collecting monthly payments, earnings are taxed as ordinary income.

How Does the Fixed Annuity Work?

Basically, in exchange for a lump sum payment (or periodic payments if you’re still working) a fixed annuity guarantees you a fixed rate of return on the money you invest for as long as you continue to accumulate earnings. The yield on a fixed annuity is often more competitive than other investments, and the investment portfolio typically includes corporate and government bonds.

Fixed annuities allow you to make a withdrawal once each year of up to 10 percent of your entire account value. During the surrender period (which lasts from 3 to 10 years) withdrawals are subject to a surrender charge. However, this fee decreases each year until it disappears completely and you can make withdrawals without penalty. Note: before age 59½, withdrawals may be subject to a 10 percent tax penalty fee in addition to ordinary income taxes.

Fixed annuities also include a minimum rate guarantee to protect against declining interest rates.

Once you decide to start taking money out of your annuity, the balance remaining (minus payments) will continue to grow at your fixed rate.

Annuities Can Be Complicated, We Can Help

As with any other purchase, it’s best to shop around when considering a fixed annuity. With the right expert to guide the process, securing a fixed annuity can be a smart investment choice, and a powerful tool for saving for retirement and guaranteeing income into the golden years. We at ToInsure.Me are knowledgeable about all types of annuities; our trained representatives can educate you or review your existing annuity. Call today and let us secure your future.

 

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