By Donn J. Sinclair, MBA March 12, 2019
Fixed annuities pay guaranteed rates of interest and in many cases higher interest rates than those available from other financial institutions. Fixed annuities are the issued by insurance companies and are essentially fixed rate savings/investments from an insurance company.
You can select either a deferred or immediate fixed annuity. The deferred fixed annuity normally allows your savings to grow tax-deferred while accumulating regular rates of interest. The immediate annuity usually provides you with regular fixed payments which are partially determined by your age, the size of your annuity purchase, the payment schedule selected, and the interest rate for your annuity.
Many people prefer the predictability, income security, and convenience of the set payout provided by a fixed annuity. This dependable income tends to make makes a fixed annuity a popular option for retirees who want a known income stream to supplement their other retirement income.
Fixed Annuity Advantages
The guaranteed interest rate makes fixed annuities popular to those investors weary of the stock market’s volatile ups and downs. Also their low minimum investments make fixed annuities appealing to those that are still building their savings. Often you can start with initial investments as low as $1,000 to $10,000, plus the interest earned normally escapes taxation until redemptions/withdrawals.
The Disadvantages Include
Fixed annuity interest rates may only be guaranteed for a limited initial period, and then the rate may drop after the first year. Unfortunately, if the new rate is not to your liking, you may be locked in for quite some time. Redemptions and withdrawals may be subject to early heavy surrender penalty charges. This could greatly reduce your expected returns.
Fixed payments are fixed payments. If you opted for lifetime payments, then they most likely will not rise to keep pace with inflation. The sad result may be that the real value of the money you receive will decline over time. Normally over the years inflation significantly erodes the purchasing power of each and every dollar you receive. If you retire young and your plan depends upon your selected fixed annuity over a long time frame, then your plan should include allowances for these fixed yet shrinking real dollar payments. Simply put, while the payments may be fixed, their purchasing power may become a big concern.
Is a Fixed Rate Annuity Right for Me ?
If you are concerned that the stock markets’ ups and downs will not provide a secure dependable retirement income stream, then a fixed annuity can help provide some stability for your retirement income needs. This income stability might become a key component of your retirement income needs by covering a fixed amount of your ongoing expenses during retirement. This might be a great discussion to have with your tax professionals and financial advisors. There are always questions and options to be considered and evaluated.
Updated in Charlotte NC and Rock Hill SC
by Donn J. Sinclair, Winthrop MBA
(803)329-0609 March 12, 2019
@Sinclair Financial Solutions is independently owned and operated. Donn J. Sinclair, MBA is insurance licensed in NC and SC (NIPR NPN#1722815). Investment Advisory Services offered through Prosperity Wealth Management, Inc., 2333 San Ramon Valley Boulevard, Suite #200 – San Ramon, CA 94583. Securities offered through Fortune Financial Services, Inc., 3582 Brodhead Road, Suite #202 – Monaca, PA 15061; branch office of record located at 948 Myrtle Drive Rock Hill, SC 29730, Member FINRA/SIPC. Sinclair Financial Solutions, Prosperity Wealth Management, and Fortune Financial Services, Inc are separate entities. SC Real Estate License #76530, and NRDS #554027312.