Maintaining a consistent level of income during retirement can be accomplished with the help of a fixed annuity. Instead of being susceptible to shifts in the market and interest rates, these insurance contracts are intended to pay the owner an interest rate that is guaranteed, regardless of the prevailing market conditions.
These insurance policies can be acquired with a one-time payment or paid for over a period of time, and the insurance company will guarantee that the account will earn a consistent interest rate regardless of when the payments are made. The attractive features of these products include their low risk, as well as their predictable returns on retirement, in addition to their provision of tax-deferred savings.
Once you meet the requirements to start receiving payments from a fixed annuity, such payments are considered taxable income. In a manner analogous to that of the investment accumulation phase, the money was put away devoid of taxation.
Types of Fixed Annuities
Fixed Annuities Vary in Design
The best way to prepare for the future is to carefully consider the various options, each of which comes with a unique set of advantages.
Traditional Fixed Annuities
These insurance policies build up value at a predetermined rate of interest over time. Every agreement comes with its own set of stipulations, and one characteristic of some classic fixed annuities is that they raise the interest rate after a predetermined period of time has passed.
When investing in a typical fixed annuity, it makes perfect sense to search for a policy that provides the maximum potential interest rate on the investment. The “fixed” interest rates will remain in effect for the agreed-upon number of years for the duration of the contract.
These fixed annuities track an underlying market index, such as the Dow or the S&P 500. Depending on the index, the annuity’s value may increase or decrease over time. They are constructed in such a way that you will never suffer a loss on your investment, regardless of what the stock market does. You will not incur any financial loss even if the stock market has a decline; nevertheless, even if it experiences growth, your interest rate will not increase.
Multi-year Guaranteed Annuity
The interest rate on these annuities is guaranteed to remain stable throughout the duration of the contract with the insurance company, and the interest rate will not increase or decrease under any circumstances.
The interest rate on these fixed annuities is guaranteed to remain the same for the duration of the entire term of the contract, as opposed to being guaranteed for a specific number of years. People who are getting closer to the age at which they can retire may find that these fixed annuities are suitable for them because they postpone paying taxes and ensure a return on investment.
Fixed Annuities and Retirement: Immediate and Deferred Annuities
Your retirement income will be determined by whether you chose a deferred or immediate annuity to fund your retirement. When a retiree or someone close to retirement buys a fixed annuity with a lump amount, they gain the security of knowing they will receive a steady stream of income for the rest of their lives.
Deferred annuities are best for persons who are not near retirement age and who do not anticipate needing the income stream until later in life, such as by purchasing a home or starting a family.
Choosing the Best Fixed Annuity – For You
Because there are a variety of fixed annuities to choose from, and the organizations that provide these products may have variable interest rates, it is important that you select the option that is most suited to meet your specific requirements.
Help in choosing the best fixed annuity for your specific needs can be obtained from a local insurance agent who is well-versed in all available annuity products and can explain the nuances to you in plain English.