By Donn J. Sinclair, MBA September 1, 2018
Fixed annuities are essentially fixed rate savings/investments issued by insurance companies. Fixed annuities pay guaranteed rates of interest, in many cases higher than available from other financial institutions.
Fixed annuities can be deferred or immediate. The deferred variety accumulate regular rates of interest and the immediate kind make fixed payments – determined by your age and size of your annuity – during retirement.
The convenience and predictability of a set payout makes a fixed annuity a popular option for retirees who want a known income stream to supplement their other retirement income.
What Are The Advantages ?
Fixed annuities pay guaranteed rates of interest, which makes them appealing to investors wary of the stock market’s ups and downs. What also makes them appealing are their low investment minimums – usually $1,000 to $10,000 – and the fact that the interest they pay escapes taxation until you pull it out.
What Are The Disadvantages ?
Their rates can also be fixed for a limited period, and then drop say, after the first year. If you don’t like the new rates and want to withdraw your money early, heavy surrender charges could kick in and cut into your returns.
Plus, if you decide to opt for fixed lifetime payments, those payments will not rise to keep pace with inflation. As a result, the value of the money you receive will decline over time as inflation erodes the purchasing power of each dollar. So for example, if you retire young and plan to keep collecting annuity payments for a longer period of time, the purchasing power of your money could be a big concern.
How Do I Know if One is Right for Me ?
If you’re worried about coming up short, a fixed annuity can help you sleep at night. Because of their stability, fixed annuities might be well suited to those who want to make sure their money will be enough to carry them through retirement, and at least cover the bare minimum of fixed expenses.
Updated in Rock Hill SC and Charlotte NC
by Donn J. Sinclair, MBA
(803)329-0609 September 1, 2018
@Sinclair Financial Solutions is independently owned and operated. Donn J. Sinclair, MBA is SC insurance licensed in CT, GA, IL, NC, SC, and VA (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 FinancialServices, Inc are separate entities. SC Real Estate License #76530, and NRDS #554027312.