Fixed annuities are a popular option for individuals who are looking for a safe and secure way to save for retirement.
Unlike variable annuities, which are tied to the stock market and can fluctuate in value, fixed annuities offer a guaranteed rate of return.
They also provide stable tax-deferred growth and a predictable source of retirement income when needed.
How Fixed Annuities Work
A fixed annuity is a contract between an individual and an insurance company. The individual usually makes a lump-sum payment, and in exchange, the insurance company agrees to pay a fixed rate of return on the investment for a specified period of time, typically several years.
During the accumulation phase, the annuity earns interest on the investment, which is tax-deferred until it is withdrawn. At the end of the accumulation phase, the individual can choose to receive regular income payments from the annuity, either for a specified period of time or for the rest of their life.
In other cases, the annuity owner might roll their account over to a new policy for continued growth. This can be done through a 1035 tax-free exchange allowing for additional growth and flexibility.
Benefits of Fixed Annuities
Fixed annuities offer several benefits making them an attractive option for retirement savings, including:
- A Guaranteed Rate of Return: Fixed annuities offer a guaranteed rate of return, providing a stable and predictable source of retirement income. This is especially valuable for individuals who want to protect their savings from market fluctuations or who are risk-averse.
- Tax-deferred Growth: Fixed annuities offer tax-deferred growth, which means that the earnings on the investment are not taxed until they are withdrawn. This can provide significant tax benefits, especially for individuals in a higher tax bracket.
- Asset Protection: Depending on the state, fixed annuities may offer asset protection from creditors or lawsuits. This can provide additional peace of mind for individuals who are looking to protect their assets.
- Guaranteed Income: Fixed annuities can provide a guaranteed income stream in retirement, which can help to ensure that individuals have a steady source of income throughout their retirement years.
Choosing the Right Fixed Annuity
When choosing a fixed annuity, there are several factors to consider, including the interest rate, surrender period, and fees and charges associated with the investment.
It’s important to review the terms and conditions of the annuity contract carefully. It’s advisable to work with a financial professional who can help you to select the right annuity for your specific financial needs and goals.
Considering the turmoil in the stock and bond markets lately coupled with several major bank failures, our clients are looking for safe and predictable investments. Now that interest rates are competitive, a very compelling argument can be made for investing in fixed annuities.
Discuss Your Options With A Licensed Expert
In conclusion, fixed annuities are a valuable retirement savings option for individuals looking for a safe and secure way to save for retirement.
By providing a guaranteed rate of return, tax-deferred growth, and asset protection, fixed annuities offer a reliable source of growth and/or retirement income. Simply put, they help to ensure a comfortable and relaxed retirement.