Retirement Planning: The Advantages of Fixed Annuities
Retirement Planning: The Advantages of Fixed Annuities
A fixed annuity is a contractual obligation rendered by an insurance company with a pledge to disburse income to a recipient based on a fixed return on investment. Therefore, they are ways for the holders of such instruments to be guaranteed future dividends or a source of income. That’s why, when selecting from the variety of annuities available, annuities are a logical choice to make for retirement planning.
Fixed annuities have a rate of return or ROI that is equal to the rate of return of the market. Therefore, they offer a lower risk to the consumer and, as a result, more financial security. Comparatively, variable annuities incur more risk for the consumer. Variable annuities typically glean a higher return rate although the holder of these types of instruments is also more vulnerable financially. Therefore a greater risk is supplied. Subject to market rates, you can possibly lose a portion of what you invest.
On the other hand, fixed annuities offer the convenience and comfort associated with a lower-risk instrument. The holder of the annuity simply opts for a lower rate of return. You might say a fixed annuity can be likened to a CD, except you realize a far greater return on your investment because your money is committed for a far longer period of time.
Investing in fixed annuities is financially sound from a tax standpoint as all deposited funds in such annuities are tax-deferred until which time you decide to receive income from the annuity. At that time, taxes are taken out only on the income growth, thereby making these types of annuities ideal for retirement planning.
Because of the tax advantage, these products are used primarily for long-term planning purposes. In other words, income cannot be collected from the annuity prematurely, which means before the age of 59 ½, as the holder can be assessed taxes, fees, and penalties. Also, surrender charges are imposed if you choose to cash in your annuity before the specified time. The charges can be excessive so one should consider them for long-term investment purposes only.
If you are truly serious about planning for retirement and are someone who needs a financial product that provides a minimal amount of risk, a fixed annuity may well be worth your consideration.
Take time out to contemplate all the pros and cons of owning such an instrument. For retirement planning purposes though, fixed annuities are ideal because, as previously stated, they offer a tax advantage for the consumer.
Additionally, the opportunity to invest in other enterprises is increased because of the annuity’s tax benefits. You can become prosperous with your short-term investments while investing in a solid financial product in order to secure your future income needs.
In summation, fixed annuities provide the kind of financial security you need now to realize monetary growth in other areas, and the assurance that you will be provided an adequate future return on your investment.
